Principal Purpose Test Introduced in India–Sri Lanka DTAA

On 19th July 2026, India strengthened its Double Taxation Avoidance Agreement (DTAA) framework with Sri Lanka by introducing an anti-abuse provision to prevent the misuse of treaty benefits through tax avoidance arrangements.

Major Changes

  • Introduced the Principal Purpose Test (PPT) into the DTAA.
  • Amended the treaty preamble to prevent double non-taxation.
  • Treaty benefits will apply only to arrangements with genuine commercial purpose.
  • Changes will apply in India to income derived from 1 April 2027.

What is Principal Purpose Test (PPT)?

  • Anti-abuse rule to prevent treaty shopping and tax avoidance.
  • Denies DTAA benefits if obtaining tax benefits is one of the principal purposes of an ....
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