Mauritius Holding Company for India: Keep, Fix, Move, Collapse

The Protocol amending the India–Mauritius DTAA entered into force on 10 August 2026. It adds a principal purpose test (new Article 27B): a Mauritius fund holding Indian investments can now be denied treaty benefits on an item of income if obtaining the benefit was one of the principal purposes of an arrangement. The Protocol contains no grandfathering or transitional provision of its own, and the Supreme Court’s Tiger Global judgment of January 2026 said that a tax residency certificate alone is not enough for treaty benefits. For funds that decide to move, Indian law exempts specified transfers in a relocation to a fund in GIFT IFSC from capital gains tax, subject to conditions, if completed on or before 31 March 2030 (s. 70, Income-tax Act 2025). Mauritius tax, investor-level tax, stamp duty and other costs are separate.

What the India–Mauritius DTAA Protocol changes

The instrument

The Protocol was signed at Port Louis on 7 March 2024. India notified it by Notification No. 135/2026, S.O. 5611(E), dated 13 October 2026, under s. 159(1) of the Income-tax Act 2025. The notification records that the Protocol “entered into force on the 10th day of August, 2026, being the date of the later” of the two countries’ notifications. It amends the 1982 Convention “as amended by the Protocol signed at Port Louis on 10th May 2016”. Mauritius made its implementing regulations on 29 July 2026 (Government Notice No. 136 of 2026). Notification in India came two months after entry into force; the effective date follows entry into force (Art. 3).

The principal purpose test: Article 27B

The Protocol inserts a new Article 27B, headed “ENTITLEMENT TO BENEFITS”, “after Article 27A”. It is a single paragraph:

“Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.”

Four features matter for a fund:

1. “One of the principal purposes.” The benefit need not be the only or main purpose.
2. “Any arrangement or transaction.” There is no carve-out for arrangements made before 10 August 2026.
3. “Directly or indirectly.” The arrangement need not produce the benefit itself.
4. The exception. The benefit is still granted if “it is established” that this accords with the object and purpose of the relevant provisions. The Article does not say who must establish it.

The new preamble

Article 1 of the Protocol replaces the preamble. The Contracting States now record that they intend “to eliminate double taxation with respect to the taxes covered by this Convention without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third jurisdictions)”. This informs the “object and purpose” exception in Article 27B.

Effective date

Article 3(2) reads: “The provisions of this Protocol shall have effect from the date of entry into force of the Protocol, without regard to the date on which the taxes are levied or the taxable years to which the taxes relate.”

So Article 27B has effect from 10 August 2026, part-way through tax year 2026-27. The text does not say whether “effect from” turns on when income arises or when a benefit is claimed. It does not deal separately with income arising after that date from an arrangement made earlier. Both points are unsettled on the face of the Protocol.

India’s notification of 13 October 2026 gives effect to the Protocol “in accordance with Article 3”. In AO (International Taxation) v. Nestle SA (2023), the Supreme Court held a notification under s. 90(1) of the 1961 Act (now s. 159(1)) necessary to give effect to a treaty or protocol in India. No official guidance was found on withholding or treaty claims between 10 August and 13 October 2026, so positions taken in that interval may need review. The Income Tax Department’s consolidated text of the treaty marks the new preamble and Article 27B “w.e.f. 13-10-2026”, the date of the notification. That is an editorial note on the department’s page, not part of the Protocol; Article 3 gives the Protocol effect from 10 August 2026.

Grandfathering and transitional provisions

The Protocol has none. It has three Articles: the preamble (Art. 1), Article 27B (Art. 2), and entry into force and effect (Art. 3). It does not amend Article 13 (capital gains) or any other article. It has no saving for existing holdings or for investments made before any date.

CBDT Circular No. 01/2025 (21 January 2025), issued before the Protocol, fills part of the gap. It says “the PPT provision is intended to be applied prospectively”, for a bilateral protocol “from the date of entry into force of the DTAA or the Amending Protocol incorporating the PPT” (para 4.A). It lists the India–Mauritius DTAA among treaties with “grandfathering provisions”, which “shall remain outside the purview of the PPT provision, being governed, instead, by the specific provisions in this regard of the respective DTAA itself” (para 4.B). That carve-out comes from the circular, not the Protocol, and covers only the DTAA’s existing grandfathering provisions on their own terms. The circular expects “a context-specific fact-based exercise, to be carried out on a case-by-case basis” (para 4.C). It says nothing specific about funds.

Tiger Global and domestic GAAR

The Supreme Court in Tiger Global

In Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings (2026 INSC 60, Civil Appeals 262–264 of 2026, 15 January 2026), the Supreme Court allowed the Revenue’s appeals and set aside the High Court’s judgment (para 51). The case concerned a 2018 sale of shares by Mauritius entities under the 1961 Act, including its indirect transfer provision (s. 9(1)(i), Explanation 5), Chapter X-A (GAAR) and Rule 10U of the 1962 Rules. The Court upheld the Authority for Advance Rulings’ rejection of the applications at the admission stage under proviso (iii) to s. 245R(2), on a prima facie view of the evidence (para 50); it was not a final assessment. The Court said:

• “a TRC alone is not sufficient to avail the benefits under the DTAA” (pp. 115–116);
• the cut-off date for investments in old Rule 10U(1)(d) “stands diluted by Rule 10U(2), if any tax benefit is obtained based on such arrangement” on or after 1 April 2017 (para 46);
• where shares were “transferred pursuant to an arrangement impermissible under law”, the assessees “are not entitled to claim exemption under Article 13(4) of the DTAA”, and gains on transfers after 1 April 2017 “are taxable in India” (para 50).

Notification No. 55/2026: domestic GAAR carve-out restored

For the 2025 Act, CBDT Notification No. 55/2026 (G.S.R. 241(E), 31 March 2026, in force 1 April 2026) substituted rule 128(1)(d) and 128(2) of the Income-tax Rules 2026. Chapter XI (GAAR) now applies to tax benefits obtained on or after 1 April 2017 “except for that income which accrues or arises to, or deemed to accrue or arise to, or is received or deemed to be received by, any person from transfer of such investments which were made before the 1st April, 2017 by such person” (r. 128(2)). So under the 2025 Act, sub-rule (2) no longer overrides the pre-2017 carve-out, unlike the Court’s reading of old Rule 10U(2). For years under the 1961 Act, CBDT Notification No. 54/2026 (G.S.R. 240(E), 31 March 2026) made the same change to the Income-tax Rules 1962: it substituted rule 10U(1)(d) and rule 10U(2) in the same terms, in force on publication in the Gazette. Its Explanatory Memorandum says Chapter X-A “shall not be invoked on or after the date of publication” where income arises from transfer of investments made before 1 April 2017 by the same person. The notification does not say how it applies to proceedings already pending on that date.

This is a domestic GAAR rule only. It does not alter treaty conditions: Article 27B, Circular No. 01/2025, beneficial ownership, or the Court’s points on the TRC and Article 13(4).

Pre-2017 holdings are not uniformly protected

What the India–Mauritius tax treaty change means for Mauritius funds

For a Mauritius fund with Indian investments, residence in Mauritius is no longer the only gate to treaty benefits. From 10 August 2026, each item of income for which a benefit is claimed must also pass Article 27B. For a historical structure, the points typically tested are:

• Acquisition dates of each holding, before or after 1 April 2017.
• What was acquired: shares of an Indian company, or of a foreign holding company.
• Beneficial ownership of the income.
• Investor composition: the preamble refers to “residents of third jurisdictions”.
• Where decisions are taken, and by whom.
• Treaty residence and the TRC: necessary, but not sufficient (Tiger Global).
• Commercial purpose and documentation: Article 27B looks at “all relevant facts and circumstances”.
• Which income: the test applies “in respect of an item of income”, so dividends, interest and gains may come out differently.

No CBDT guidance specific to this Protocol was found beyond the notification.

Options for a Mauritius fund holding Indian investments

The third option is for funds only. An ordinary Mauritius holding or operating company is not an “original fund” and cannot use s. 70(1)(t) or (u); its options are in Mauritius holding company after the 2026 Protocol. The 31 March 2030 date is the last date for a relocation, not a grace period from Article 27B, which has had effect since 10 August 2026. Relocation also has a treaty cost outside tax: a GIFT IFSC fund is established in India, so it is not a Mauritius investor under the India–Mauritius BIT, which was terminated with effect from 22 March 2017 and whose protection for earlier investments ends about 22 March 2027, unless a contract or approval granted to the investor provides a longer period (see India–Mauritius BIT: treaty protection ends March 2027).

The rest of this article covers the third option. For the IFSC fund’s tax position after the move, see GIFT City tax benefits for funds and fund managers. For managers with a UAE base, see the UAE–India corridor and GIFT City.

Relocating a Mauritius fund to GIFT City under section 70

Two transfers that are not “transfers”

Section 70(1) says the capital gains charge in s. 67 does not apply to:

• (t) a transfer “in a relocation, of a capital asset by the original fund to the resulting fund”; and
• (u) a transfer “by a shareholder or unit holder or interest holder, in a relocation, of a capital asset being share or unit or interest held by him in the original fund in consideration for the share or unit or interest in the resultant fund”.

Clause (t) protects the fund; clause (u) protects investors. The Act uses “resulting fund” and “resultant fund” interchangeably (definitions: s. 70(2), Table item 5). These are domestic-law exemptions. Article 27B denies “a benefit under this Convention”, so in our reading it does not apply to s. 70 itself. It comes back in through Schedule VI, Sl. 10 (below). Domestic anti-avoidance is covered above only for pre-2017 investments. Section 70 does not deal with Mauritius tax, investor-level tax outside India, or stamp duty.

The original fund

An “original fund” is one of three things (s. 70(2), item 5(a)):

(A) An offshore fund “established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit”, meeting all four conditions:

(B) an Abu Dhabi Investment Authority vehicle, wholly owned and controlled by ADIA or the Government of Abu Dhabi; or (C) a fund notified by the Central Government.

Condition (ii) asks about residence in a treaty country, not entitlement to treaty benefits, so on one reading Article 27B does not affect it.

Rule 51. Rule 51 of the Income-tax Rules 2026 prescribes the item 5(a)(A)(iv) condition only “in a case where a capital asset is transferred to a resultant fund being a Category III Alternative Investment Fund”: resident participation in the original fund must not exceed “5% of the corpus of such fund at the time of such transfer” (Rule 51(1)). It is tested at each transfer. Category I and II AIFs, retail schemes and ETFs have no such condition, though resident ownership still matters for specified-fund status. No notification of territories under item 5(a)(A)(ii) was found.

Relocation

A “relocation” is a transfer of the assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund “on or before the 31st March, 2030” (s. 70(2), item 5(b)). The consideration must be shares, units or interests in the resultant fund, issued either:

• (i) to the original fund’s holders, “in the same proportion” as they held the original fund, in lieu of their interests; or
• (ii) to the original fund itself, in the same proportion, for interests not issued directly to holders.

Reshuffling, cashing out or diluting investors risks the definition.

“Special purpose vehicle” is not defined for relocation. Item 9 of the s. 70(2) Table applies only to clause (zi). The ordinary meaning is the likely starting point.

There is a wording gap for SPV assets. Clause (t) exempts a transfer “by the original fund to the resulting fund”. It does not mention a transfer by the SPV, although the definition of “relocation” covers the SPV’s assets and Schedule VI, Sl. 10 refers to shares transferred “from its wholly owned special purpose vehicle”. The 1961 Act used the same words (s. 47(viiac)). Whether a transfer made by the SPV itself is within clause (t) is a question of interpretation, and we found no CBDT guidance on it.

The resultant fund

A “resultant fund” is a fund set up in India as a trust, company or LLP, “located in an IFSC as referred to in section 147” (s. 70(2), item 5(c)), holding:

• (i) a certificate of registration as a Category I, II or III AIF; or
• (ii) a certificate as a retail scheme or ETF, as per Schedule VI (Note 1), fulfilling the conditions in Schedule VI (Table: Sl. No. 1).

It must be regulated under the SEBI AIF Regulations 2012 or the “IFSCA (Fund Management) Regulations, 2022”. The 2025 Regulations repealed the 2022 ones (Reg. 148(1)) and deem references to them in “any act of the Government of India” to refer to the 2025 provisions (Reg. 148(4)). That supports the obvious reading, but it is an IFSCA regulation, not an amendment to the Act, and no CBDT statement confirms it. Resultant-fund status for an IFSC fund therefore rests on Reg. 148(4). The 2025 Regulations also treat a PPM taken on record as the certificate of registration “For the purpose of the Income Tax Act, 1961” (Reg. 31(2), Explanation; Reg. 43(2)). Both points are worth recording in the transaction file.

The Finance Act 2026 did not touch the relocation provisions; its only change to s. 70 was clause (x), Sovereign Gold Bonds (s. 43).

After the move: Schedule VI, Sl. 10

Schedule VI, Sl. 10 covers later sales of Indian shares carried across. It exempts “Any income of the nature of Capital gains, arising or received on account of transfer of share of a company resident in India” for “Any non-resident or a specified fund”, if:

1. the gain is on a transfer of shares by the resultant fund or a specified fund;
2. the shares came from the original fund, or its wholly owned SPV, in a relocation, and “the capital gains on such shares were not chargeable to tax if that relocation had not taken place”; and
3. the exemption covers only the part attributable to non-resident units (not a PE in India), computed as prescribed.

Under Rule 285, exempt amount = A × B ÷ C: the qualifying gain, times aggregate daily AUM held by non-resident unit holders from acquisition to transfer, divided by aggregate daily total AUM over that period. The fund files Form No. 178, certified in Form No. 179; without Form No. 178 the exempt amount is nil (Rule 285(1)(b), (2), (3)).

Two points need care:

• The second condition is hypothetical, and this is where the Protocol bites. Would the gain have been taxable had the Mauritius fund kept and sold the shares? Where the answer depends on treaty relief, it now also depends on Article 27B, and on whether the holding falls within the DTAA’s grandfathering provisions. Relocating does not remove that question. It moves it into the Sl. 10 analysis.
• Category I or II resultant funds. Sl. 10 covers “Any non-resident or a specified fund”. Rule 285 is written only for “the specified fund, being resultant fund”. A Category I or II fund is a pass-through “investment fund” under s. 224, not a specified fund. One possible route is the “Any non-resident” limb: the gain is exempt in the fund (Schedule V, Sl. 1) and taxed in the non-resident unit holder’s hands as if it had invested directly (s. 224(1)), so that holder might claim Sl. 10. But the non-resident share must be computed “in such manner, as may be prescribed”, and Rule 285 prescribes it only for a specified fund. The route is untested, and how Sl. 10 applies is unsettled.

The manager’s own stake: Rule 58

Rule 58(1) (Table, Sl. 5) disapplies s. 92(2)(m) for “The fund management entity of the resultant fund”, on units received “in lieu of shares or units or interest held by the investment manager entity in the original fund, pursuant to the relocation”. At least 90% of the GIFT FME must be held by the same persons, in the same proportion, as in the original fund’s investment manager entity, and those persons must have held at least 90% of that entity. “Investment manager entity” means the original fund’s manager “regulated by the respective regulation of the jurisdiction in which the original fund is located” (Rule 58(3)(e)(iii)). Rule 58(3)(e)(ii) still defines “fund management entity” by reference to the 2022 FM Regulations.

The regulatory side: FM Regulations 2025

The FM Regulations 2025 have no relocation chapter. Their only relocation rule is that FME or associate contribution is “not mandatory in case of relocated schemes established or incorporated or registered outside India to IFSC”. This applies to Venture Capital schemes (Reg. 28(1)), restricted schemes (Reg. 40(1)) and retail schemes (Reg. 52(1)(i)). The IFSCA FAQ repeats it (Q. 29, 58, 74).

Everything else applies. A relocated private fund will usually be a restricted scheme launched by a Registered FME as a company, LLP or trust in IFSC, in Category I, II or III by strategy (Regs. 3(1), 30(1), 31(1), 33(5); the steps are in GIFT City AIF setup):

A non-accredited investor below USD 150,000 cannot simply receive units “in the same proportion”, so Reg. 32(2) is the first point to test.

A retail scheme needs a Registered FME (Retail) (Reg. 42), an offer document filed at least 21 working days before launch (Reg. 43(1)), and at least 20 investors, none above 25% (Reg. 44). Category drives tax after the move: Category III, retail and ETF funds can be specified funds (Schedule VI, Note 1(g)); Category I and II funds are pass-through (s. 224). Both provisions still cite the 2022 Regulations, so these outcomes rest on Reg. 148(4) and are not confirmed by CBDT. See Category I, II and III AIFs in GIFT City.

Practical checklist

The points below are those commonly checked in a relocation.

1. Treaty position. For each Indian holding, the points listed earlier.
2. Original fund. Item 5(a)(A) status; for a Category III resultant fund, the Rule 51 5% test at each transfer.
3. Assets. Held directly and through wholly owned vehicles; for SPV-held assets, the clause (t) wording point above.
4. Sl. 10 test. Share by share, why each gain would not have been taxable without the relocation.
5. Investors. Whether units can be issued “in the same proportion”, within Reg. 32 limits.
6. Category. Regulatory fit weighed against tax treatment.
7. FME. SWIT and SEZ process; s. 147, including s. 147(5); Rule 58 90% tests if the manager’s stake moves.
8. Execution. PPM filing, asset transfer and issue of units by 31 March 2030, with evidence of the proportions.
9. After the move. Forms No. 178 and 179 (Rule 285) and, for a specified fund, Form No. 68 (Rule 139).

Timeline

Before 1 April 2026 the relocation regime sat in s. 47(viiac) and (viiad) of the 1961 Act. Transfers up to 31 March 2026 fall under that Act; later ones under s. 70.

No processing times are set for IFSCA or SEZ approvals.

Common questions

What is the India–Mauritius DTAA Protocol 2026? The Protocol signed on 7 March 2024 that replaces the preamble and adds Article 27B, a principal purpose test. In force from 10 August 2026; notified in India on 13 October 2026 (S.O. 5611(E)).

Does the principal purpose test apply to existing Mauritius investments? The Protocol has no grandfathering or transitional clause and covers “any arrangement or transaction” from 10 August 2026. CBDT Circular No. 01/2025 keeps the DTAA’s own grandfathering provisions outside the PPT (para 4.B). That is not blanket protection: indirect transfers, dividends and interest are treated differently, and Tiger Global shows that a TRC alone is not enough.

Can a Mauritius fund relocate to GIFT City tax-free? Not entirely. Under s. 70(1)(t) and (u), specified transfers are exempt from Indian capital gains tax if the fund is an “original fund” and the move is a “relocation” made by 31 March 2030. Mauritius tax, investor-level tax, stamp duty and other costs are separate. The PPT does not change the residence condition in item 5(a)(A)(ii).

Will later gains on Indian shares be taxed after relocation? Only the non-resident share of qualifying gains is exempt (Schedule VI, Sl. 10; Rule 285). A gain qualifies only if it would not have been taxable without the relocation, which can turn on Article 27B.

Sources

1. Notification No. 135/2026, S.O. 5611(E): Protocol amending the India–Mauritius Convention (Arts. 1–3; new Art. 27B). Ministry of Finance (Department of Revenue), 13 October 2026. incometaxindia.gov.in
2. Government Notice No. 136 of 2026: Double Taxation Avoidance Agreement (India) (Amendment) Regulations 2026. Government of Mauritius (made by the Minister under s. 76, Income Tax Act; published on the MRA website), 29 July 2026. mra.mu
3. Circular No. 01/2025: Guidance for application of the Principal Purpose Test (PPT) under India’s DTAAs (paras 3, 4, 4.A, 4.B, 4.C). CBDT, 21 January 2025. incometaxindia.gov.in
4. Income-tax Act, 2025 – Section 70 (cl. (1)(t), (u), (x), (zi); sub-s. (2) items 5 and 9). Income Tax Department. incometaxindia.gov.in
5. Income-tax Act, 2025 – Schedule VI (Sl. 1, 10; Notes 1 and 6; page “Year: 2025”). Income Tax Department. incometaxindia.gov.in
6. Income-tax Act, 2025 – Schedule V (Note 2). Income Tax Department. incometaxindia.gov.in
7. Income-tax Act, 2025 – Section 224. Income Tax Department. incometaxindia.gov.in
8. Income-tax Rules, 2026 (G.S.R. 198(E)) (Rules 51, 58, 139, 285). CBDT, 20 March 2026. incometaxindia.gov.in ; Rule 285: incometaxindia.gov.in ; Rule 139: incometaxindia.gov.in
9. Income-tax Act, 1961 – Section 47 (cl. (viiab), (viiac), (viiad), (xvii) and Explanations). Income Tax Department. incometaxindia.gov.in
10. Finance Act, 2026 (No. 4 of 2026), s. 43. Ministry of Law and Justice, Gazette of India Extraordinary, Part II, Section 1, No. 9, 30 March 2026. Official URL for the Act PDF not located
11. IFSCA (Fund Management) Regulations, 2025, as amended up to 10 September 2026 (consolidated). IFSCA, 14 September 2026. ifsca.gov.in
12. IFSCA (Fund Management) (Second Amendment) Regulations, 2026 (IFSCA/GN/2026/015), in force 10 September 2026 (Regs. 28, 31(3), 40 as substituted). IFSCA. ifsca.gov.in
13. FAQs on IFSCA (Fund Management) Regulations, 2025. IFSCA, 3 August 2026. ifsca.gov.in
14. Workflow for setting up in IFSC on the SWIT portal, v1.0. IFSCA, 7 July 2026. ifsca.gov.in
15. The Authority for Advance Rulings (Income Tax) and others v. Tiger Global International II Holdings, 2026 INSC 60 (Civil Appeals 262–264 of 2026). Supreme Court of India, 15 January 2026. sci.gov.in
16. Notification No. 55/2026 (G.S.R. 241(E)): Income-tax (Amendment) Rules, 2026 (rule 128). CBDT, 31 March 2026. incometaxindia.gov.in
17. AO (International Taxation) v. Nestle SA. Supreme Court of India, 2023. Official URL not located
18. Notification No. 54/2026 (G.S.R. 240(E)): Income-tax (Tenth Amendment) Rules, 2026 (rule 10U, Income-tax Rules 1962), with Explanatory Memorandum. CBDT, 31 March 2026. incometaxindia.gov.in
19. India–Mauritius DTAA, consolidated text (preamble and Art. 27B footnotes: “w.e.f. 13-10-2026”). Income Tax Department, retrieved 25 October 2026. incometaxindia.gov.in
20. Agreement between India and Mauritius for the Promotion and Protection of Investments (1998), Arts. 1(1)(b)(ii), 13(3); DEA BIT table (terminated 22.03.2017). DEA. dea.gov.in

Related reading

• GIFT City Tax Benefits for Funds and Fund Managers – how the IFSC fund is taxed after the move
• GIFT City AIF Setup (2026): FME Registration to Fund Launch – registering the FME and filing the PPM
• Category I, II and III AIFs in GIFT City: Rules Compared – choosing the resultant fund’s category
• Launch a GIFT City AIF Without Your Own FME – relocating under a third-party manager
• Who Can Invest in a GIFT City Fund: A Manager’s Guide – investor limits that affect proportional issue
• GIFT City tax – the IFSC tax framework
• India–Mauritius BIT: treaty protection ends March 2027 – what relocation does to investment-treaty standing

This article is general information and not legal advice. The legal framework and its application change over time; please take advice on your specific circumstances.

Part of ATB Legal’s International Trade practice.