CBDT Clarifies Exemptions From Principal Purpose Test in International Tax Deals
New Delhi [India], March 16 (ANI): The Central Board ofDirect Taxes (CBDT) CBDT ) has released a circular intended to provide guidance on the implementation of the Principal Purpose Test (Clause) provision within India's Double Taxation Avoidance Agreements (DTAAs).
In the clarification, the CBDT highlighted that the circular particularly focuses on the PPT clause within the Indian DTAA agreements where this provision is present.
PPT serves as a provision utilized within international tax legislation, notably in relation to double taxation agreements. Taxation Avoidance Agreements (DTAAs) to avoid tax treaty abuses. The PPT is intended to guarantee that tax treaties aren’t utilized for artificial or contrived structures meant to secure tax advantages devoid of real economic purpose.
The clarification stated that this circular has no impact on or interaction with other parts of the DTAA, like those used for assessing treaty eligibility or refusing treaty advantages.
Additionally, the CBDT has confirmed that the guidelines outlined in Circular No. 01/2025 do not conflict with anti-abuse provisions within India’s domestic legislation, such as the General Anti-Abuse Rule (GAAR), Specific Anti-Abuse Rules (SAAR), or Judicial Anti-Abuse Rules (JAAR).
These abuse prevention measures will remain operational separately from the circular.
The clarification emphasized that the circular doesn’t present any fresh legal interpretations. Rather, it reinforces that its scope is confined solely to the PPT provisions, guaranteeing uniformity in the way tax laws are interpreted without modifying other parts of the Income Tax Act.
This action is anticipated to provide increased clarity for both taxpayers and tax authorities, especially concerning international tax issues governed by India's tax agreements. (ANI)
