We are pleased to share with you our recent publication on – ‘CBDT issues Guidance on application of Principal Purpose Test (PPT) under India's DTAAs.’

CBDT issues Guidance on application of Principal Purpose Test (PPT) under India's DTAAs;

Setting the context with regard to the objective of PPT ( i.e denial of benefit under a DTAA  where one of the principal purposes of an arrangement /transaction was to obtain a benefit under DTAA), CBDT, in its Circular states that such a determination should be based on an objective assessment of relevant facts and circumstances; CBDT clarifies that with a view to ensure parity and uniformity in application of PPT under DTAAs, PPT provision is 'intended' to be applied prospectively;

CBDT thereafter advises on the application date for following categories – 
i)    Where PPT has been incorporated through bilateral processes. 
ii)    Where PPT has been incorporated through MLI. 
iii)    w.r.t taxes withheld at source on amounts paid or credited to non-residents etc. ;

CBDT further clarifies that w.r.t India-Mauritius, India-Cyprus & India - Singapore DTAAs where India has made treaty specific bilateral commitments in the form of grandfathering provisions, the same is not intended to interact with PPT provisions and therefore grandfathering provisions under such DTAAs shall remain outside the purview of the PPT provision;

CBDT advises that the application of PPT provision is expected to be a context specific, fact based exercise to be carried out on a case by case basis keeping in view the objective facts and findings.

We trust you find the same useful.
 

Circular_No_1_2025_dated_Jan_21_2025.pdf