The Indian Central Board of Direct Taxes (CBDT) has issued a clarification on 15 March 2025 regarding Circular No. 1/2025 concerning the application of the Principal Purpose Test (PPT) provision under India’s Double Taxation Avoidance Agreements (DTAAs).
CBDT has emphasised that the guidance provided in the Circular is not intended to override other domestic tax provisions, anti-avoidance rules, or judicial interpretations.
The Circular applies only to the PPT provision in Indian DTAAs where this provision is included, and it is not intended to affect other treaty provisions.
It does not interfere with any other provisions of the DTAAs, particularly those used to assess treaty entitlement or deny treaty benefits, other than the PPT.
The Circular also does not impact anti-abuse rules under Indian domestic law, including the General Anti-Abuse Rule (GAAR), Specific Anti-Abuse Rules (SAAR), or Judicial Anti-Abuse Rules (JAAR). These rules will continue to operate independently.
The clarification does not introduce new legal interpretations but reaffirms that the Circular applies only to the PPT provision, without altering other aspects of the Income-tax Act.
Earlier, Circular No. 1/2025, issued on 21 January 2025, was intended to provide clarity and certainty regarding the PPT provision in DTAAs where such provisions exist.
