India’s latest amendment to its tax treaty with Mauritius has raised concerns over whether investments made before April 1, 2017, could face fresh tax challenges despite existing protections. Tax experts Dinesh Kanabar and Porus Kaka have called for changes to the law, warning that uncertainty over the rules could undermine foreign investors’ confidence.
The amendment, notified on October 13 and effective from August 10, introduces the Principal Purpose Test (PPT). This allows tax authorities to deny treaty benefits if obtaining a tax advantage was one of the main reasons for a transaction or arrangement.
The concern is whether the test could be used to challenge tax benefits on older investments, despite the government’s March 2026 changes to protect qualifying investments from the General Anti-Avoidance Rules (GAAR).
Speaking to CNBC-TV18, Kanabar, chairman and CEO of Dhruva Advisors, and Kaka, senior advocate, said the government needs to clarify how the PPT will apply to investments made before the new provision took effect.
Why are older investments back in focus?
Under the existing treaty framework, qualifying shares acquired before April 1, 2017, are protected by grandfathering provisions under the capital gains tax rules. Shares acquired on or after that date fall under a revised framework that allows India to tax qualifying capital gains.
The question is whether these protections will hold if tax authorities seek to deny treaty benefits under the PPT. The Central Board of Direct Taxes (CBDT) has clarified that grandfathered shares should not be disturbed under the test. However, Kanabar said questions remain over how courts would interpret the law and the clarification.
“The fact of the matter is that, time and again, the Supreme Court and the High Courts have gone on to say that whether a circular is binding on them or not, it is binding on an assessing officer,” he said.
In other words, a tax department clarification can guide assessing officers, but uncertainty may remain over how courts interpret the underlying law. Kanabar’s concern is that authorities could seek to apply the PPT in the year income is earned, even if the investment was made before April 1, 2017.
He said he had no objection to the PPT, which follows an approach recommended by the OECD, but stressed that how it is implemented matters.
How does the Tiger Global judgment affect the debate?
The Supreme Court’s January 2026 judgment in the Tiger Global case intensified concerns over the protection available to older investments.
The case involved Mauritius-based entities that sold their stake in Flipkart’s Singapore-incorporated holding company in 2018. Tiger Global argued that its investments had been made before April 1, 2017, and should qualify for grandfathering protection. The Supreme Court upheld the tax authorities’ rejection of treaty benefits in the circumstances of the case.
In March 2026, the government amended its anti-avoidance rules to protect qualifying pre-April 2017 investments from GAAR scrutiny. However, the subsequent notification of the treaty protocol has raised a separate question: could the PPT provide another basis for challenging treaty benefits?
The two provisions are distinct. The March changes relating to GAAR do not, by themselves, settle how the PPT will apply to grandfathered investments. This is the uncertainty the experts want the government to address.
Kaka said the government had rightly acted to prevent the retrospective application of GAAR, but argued that investors should not face changes in the treatment of investments after committing their capital.
“We need investment, and we should not change the rules for investors after their investments have come in,” he said.
He added that the PPT should apply prospectively, so investors can make decisions with a clear understanding of the rules governing their investments.
What legal changes are the experts seeking?
Kanabar said a clarification alone might not resolve the issue because courts could interpret the law differently. He called for an amendment to the Income-tax Act to establish protection for grandfathered investments under both the PPT and GAAR.
“The simple thing that is required is an amendment to the Act itself to respect grandfathering, both in respect of the principal purpose test and GAAR,” he said.
Kaka also pointed to instances in which the government had amended legislation after court interpretations it considered inconsistent with its policy objectives. Such changes, he said, could protect investors from years of litigation and help ensure that investments remain subject to the rules in place when they were made.
Kanabar urged the government to act sooner rather than later, although he said an ordinance was not necessarily required. He also cautioned against attributing India’s capital outflows solely to tax concerns, noting that tax uncertainty was one of several contributing factors.
The central question is whether the government will provide a clear legal basis for protecting grandfathered investments from retrospective challenges. For foreign investors using Mauritius-based structures, the answer could determine how much certainty they have over the tax treatment of investments made before April 1, 2017.
Watch accompanying video for full conversation.
Can India’s new tax treaty rules put grandfathered Mauritius investments at risk?