The amendment to India’s tax treaty with Mauritius, notified on October 13 and effective from August 10, introduces a Principal Purpose Test that could deny treaty benefits if a tax advantage was the main motive behind a transaction.
Experts Dinesh Kanabar, chairman and CEO of Dhruva Advisors, and senior advocate Porus Kaka warned that the PPT could be applied retroactively to investments made before April 1, 2017, despite existing grandfathering provisions. Speaking to CNBC‑TV18, Kanabar said the government must clarify how the test applies to pre‑2017 holdings, noting that courts may interpret the law differently than tax authorities.
The Supreme Court’s January 2026 Tiger Global judgment intensified concerns, as the court rejected treaty benefits for Mauritius‑based investors who sold Flipkart stakes in 2018, claiming the investments were pre‑2017 and should be grandfathered. The ruling highlighted the tension between the treaty’s provisions and India’s domestic anti‑avoidance framework.
In March 2026, the government amended its General Anti‑Avoidance Rules to shield qualifying pre‑2017 investments from GAAR scrutiny, but the subsequent treaty notification left open the possibility that the PPT could still be invoked. Kanabar urged an amendment to the Income‑Tax Act to cement protection for grandfathered investments under both the PPT and GAAR, arguing that a clear statutory basis would prevent years of litigation.
Looking ahead, investors are watching for a formal clarification from the Central Board of Direct Taxes. If the government confirms that the PPT will not affect pre‑2017 holdings, Flipkart’s overseas earnings could remain stable; if not, the company may face reassessment of its tax liabilities on foreign subsidiaries. Market analysts expect the clarification to arrive before the next quarterly earnings release, and any delay could widen the valuation spread for Flipkart‑related securities.