The concept of "Mauritius" in the Indian economic context refers to the India-Mauritius Double Taxation Avoidance Agreement (DTAA), a bilateral tax treaty and a key driver of Foreign Direct Investment (FDI) into India. This agreement, signed on August 24, 1982, and notified on December 6, 1983, is a legal instrument designed to prevent taxpayers from paying income tax twice on the same income in both countries, thereby encouraging mutual trade and investment. The original DTAA, which has 38 Articles across six chapters, solved the problem of double taxation by granting exclusive taxing rights on certain income to one country.
Historically, the most significant provision was Article 13(4), which stipulated that capital gains derived by a Mauritius resident from the sale of shares of an Indian company were taxable only in Mauritius. Since Mauritius did not levy a capital gains tax, this created a "double non-taxation" scenario, making Mauritius the top source of FDI into India for years, a practice often termed "treaty shopping".
The DTAA was significantly amended by a Protocol signed on May 10, 2016, to curb this revenue loss. The amendment gave India the right to tax capital gains arising from the sale of shares of an Indian company acquired on or after April 1, 2017. Investments made before this date were grandfathered and remain exempt from capital gains tax in India. A transitional period from April 1, 2017, to March 31, 2019, applied a reduced tax rate of 50% of India's domestic rate, subject to a Limitation of Benefits (LoB) clause to prevent shell companies from misusing the benefit. The DTAA is also closely connected to the India-Singapore DTAA, which was similarly amended. A further 2024 Protocol, signed on March 7, 2024, introduced the Principal Purpose Test (PPT) to prevent the treaty's benefits from being abused for tax evasion.