India’s Central Board of Direct Taxes (CBDT) has issued a Circular setting out key guidance on the applicability of the principal purpose test (PPT) under India’s tax treaties.
The PPT is a key anti-abuse provision stipulated in Article 7 of the Multilateral Instrument (MLI), finalized as part of the OECD’s work to tackle base erosion and profit shifting (BEPS).
Circular No.1 of 2025 states that the PPT applies prospectively from the date of the MLI’s entry into force, or from the date on which bilateral tax treaties came into effect.
Special provisions apply for certain tax treaties with grandfathering clauses, including with Cyprus, Mauritius, and Singapore, which remain unaffected by the PPT.