A Mauritius entity can sit somewhere on a startup’s cap table: a fund vehicle, a holding company set up by an early investor, or a structure the founders built years ago. From 10 August 2026, any benefit that entity claims under the India-Mauritius tax treaty must pass a new test. The Central Government gave effect to it on 13 October 2026 through CBDT Notification No. 135/2026 (S.O. 5611(E)), issued under section 159(1) of the Income-tax Act, 2025.
What changed in the treaty
The notification gives effect to a Protocol signed at Port Louis on 7 March 2024. It amends the Convention of 24 August 1982 (as amended by the Protocol of 10 May 2016) in three ways:
| Protocol article | What it does |
|---|---|
| Article 1 | Replaces the Preamble. The treaty now aims to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shopping arrangements aimed at obtaining treaty reliefs for the indirect benefit of residents of third jurisdictions. |
| Article 2 | Inserts a new Article 27B, “Entitlement to Benefits”, after Article 27A. |
| Article 3 | The Protocol enters into force on the later of the two countries’ notifications (10 August 2026) and has effect from that date, “without regard to the date on which the taxes are levied or the taxable years to which the taxes relate”. |
The test in plain words
Under Article 27B, a treaty benefit is not granted for 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 it. The benefit survives only if it is established that granting it in those circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.
Three words in that sentence do most of the work for a founder or investor:
- “one of”: the treaty benefit does not have to be the only reason, or even the main reason, for the structure. Being one of the principal purposes is enough.
- “item”: the test runs income item by income item. A dividend, an interest payment and a gain on exit are each looked at separately, with the arrangement behind each.
- “Notwithstanding”: Article 27B overrides every other article of the treaty, so a lower rate or exemption elsewhere in the treaty does not apply if the test is met.
What this means for your startup
If a Mauritius entity holds your shares. Any treaty benefit it claims on dividends, interest, gains or other income from India from 10 August 2026 is open to Article 27B. The Protocol text contains no exception for investments or arrangements made before any date, so the age of the structure is not, by itself, an answer.
If your company pays a Mauritius shareholder or lender. When you withhold tax at a treaty rate on a payment to a Mauritius resident, that rate is a benefit under the treaty, so it is within the reach of Article 27B. Payments made between 10 August and 13 October 2026 fall in the same period.
If you are about to raise from a Mauritius vehicle. Treaty-shopping for the indirect benefit of residents of third jurisdictions is now named in the Preamble, and the “object and purpose” exception is read with it. Understand why the investor uses that vehicle before you document withholding and tax representations in the deal papers.
Your checklist
- List every item of income from India received by a Mauritius entity in your group or cap table on or after 10 August 2026 on which a treaty benefit was claimed or applied.
- For each item, identify the arrangement or transaction that produced it.
- Record the commercial and non-tax reasons for the Mauritius entity and each arrangement, with documents made at the time.
- Revisit treaty-rate withholding on payments to Mauritius residents from 10 August 2026, and ask the payee for the facts that support its entitlement.
- Do not rely on the date of the original investment to keep a structure outside Article 27B.
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Source: Ministry of Finance (Department of Revenue), CBDT Notification No. 135/2026, S.O. 5611(E), dated 13 October 2026, with the Protocol amending the India-Mauritius Convention signed at Port Louis on 7 March 2024, incometaxindia.gov.in
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A S Banka Advisors Private Limited. This article is for general information and is not legal advice.
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