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Taxation Central Ministry of Finance Income Tax Act, 1961

CBDT notifies Guidance on Principal Purpose Test (PPT) in India's DTAAs

21-Jan-2025 | Circular No. 01/2025

Central Board of Direct Taxes (CBDT) has issued a Circular clarifying the application of the Principal Purpose Test (PPT) in India's Double Taxation Avoidance Agreements (DTAAs).

By virtue of the Circular, Grandfathering provisions have been established for treaty benefits with Mauritius, Singapore, and Cyprus, allowing prior investments to remain unaffected by the new rules. This clarification aims to provide relief to Foreign Portfolio Investors (FPIs) and ensure a consistent application of tax treaties, thereby promoting a stable investment environment in India. The Principal Purpose Test (PPT) applies prospectively from the date the Multilateral Instrument (MLI) came into force (1st October 2019 for India) or from the effective dates of bilateral agreements.

For detailed information, please refer to the attached circular.

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