New Delhi, Oct. 15 -- Foreign investors routing money into India through Mauritius will face greater scrutiny under new tax treaty rules that allow India to deny tax benefits if one of the main reasons for an investment structure was to obtain those benefits. A notification issued on 13 October gives effect in India to a protocol amending the India-Mauritius tax treaty, signed in March 2024. The protocol came into force on 10 August 2026, while the notification formally implements its provisions in India. The amendment introduces a Principal Purpose Test (PPT), which allows tax authorities to deny treaty benefits if obtaining them was one of the main purposes of a transaction or arrangement. Benefits can still be granted if doing so is consistent with the purpose of the relevant treaty provisions. The change matters for foreign portfolio investors (FPIs), private equity (PE) and venture capital (VC) funds, holding companies and special-purpose vehicles that use Mauritius-based entities to invest in India. They may need to provide clearer evidence of the business reasons behind their investment structures when claiming tax benefits under the treaty. The amendment adds Article 27B, titled Entitlement to Benefits, to the existing Double Taxation Avoidance Agreement (DTAA). Under the PPT, authorities can examine whether securing a tax benefit was one of the main reasons for a transaction or arrangement. For instance, if a company establishes an entity in Mauritius primarily to claim tax benefits on investments in India, authorities can deny those benefits unless granting them is consistent with the purpose of the relevant treaty provisions. This does not mean that all investments routed through Mauritius will automatically lose tax benefits. Authorities will examine the purpose of each arrangement and the facts of the case before deciding whether the benefits should be allowed. Richa Sawhney, partner, tax, at Grant Thornton Bharat, said the India-Mauritius treaty had been at the centre of tax litigation in India for decades, with many disputes focusing on treaty shopping and the availability of benefits under structures perceived as tax driven....