📚 CBDT Circular · International tax / treaty guidance
Circular No. 1/2025 — Guidance for application of the Principal Purpose Test (PPT) under India's Double Taxation Avoidance Agreements
In plain English
India's tax treaties now include a Principal Purpose Test (PPT) — a treaty benefit (like a lower withholding rate or capital-gains relief) can be denied if getting that benefit was one of the principal purposes of an arrangement. This circular is CBDT's guidance on applying the PPT, and clarifies it works prospectively and separately from grandfathering under specific treaties (Mauritius, Singapore, Cyprus).
What it actually says
- The PPT is an anti-abuse rule brought in via the Multilateral Instrument (MLI) and bilateral treaty amendments.
- It applies prospectively; earlier grandfathered investments under specific treaties are governed by those treaties' own provisions.
- Other anti-abuse tools (GAAR, specific limitation-of-benefit clauses) continue alongside the PPT.
Who this affects & what to do
For NRIs & foreign investors
Claiming a treaty benefit (lower TDS u/s 195, treaty capital-gains relief)? Be ready to show genuine commercial purpose, not just tax saving.
For advisors
Document the commercial substance of cross-border structures before claiming treaty relief.
The law it touches
Section 90 (treaties) Section 195 MLI / PPT
The official document
📄
Read the official CBDT circular (PDF)Official CBDT circular No. 1/2025 — opens the official PDF on incometaxindia.gov.in.
📄 View the PDF ↗
Our explanation is a plain-language summary for general understanding, not advice on your specific matter.
The official CBDT copy prevails. © EaseValue Advisors LLP.
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