India Amends Tax Treaty with Sri Lanka to Plug Avoidance 📈

India has notified an amended protocol to its Double Taxation Avoidance Agreement (DTAA) with Sri Lanka, aimed at tightening loopholes, preventing treaty abuse, and curbing revenue leakage. The provisions will apply in India to income derived starting April 1, 2027. • Key Policy Change: The amended pact introduces the Principal Purpose Test (PPT) and updates the treaty's preamble. This shifts the framework from a purely objective criteria checklist to a focus on genuine commercial substance. • Impact on Investors: Tax authorities are now empowered to deny treaty benefits if a structure's principal purpose is to obtain a tax advantage, rather than facilitate real economic activity. Investors must now clearly substantiate the commercial rationale behind their investment structures. • Global Alignment: The modification integrates two significant OECD Multilateral Instrument (MLI) mandated changes. This aligns the bilateral corridor with international standards to prevent treaty-shopping and double non-taxation.