India's new Mauritius tax test leaves pre-2017 share gains alone

Economy No. 75 16 October 2026 · 2 min read

On 13 October 2026, India published a change to its tax treaty with Mauritius. If a company uses Mauritius mainly to pay less tax in India, India can now refuse to give it the tax discount. The rule has been in force since 10 August 2026.

Under the 1982 treaty, a Mauritius company selling Indian shares paid capital gains tax only in Mauritius, not in India. This made Mauritius a popular route for foreign investors. It accounted for 33.6% of India's FDI equity inflows between April 2000 and March 2017.

India began closing this tax break in 2016. Gains on shares bought from 1 April 2017 became taxable in India. For gains on these shares made by 31 March 2019, the tax rate was capped at half the normal rate. Shares bought before April 2017 kept their exemption.

The shift is visible in the numbers. Mauritius's share of India's FDI equity inflows fell from 35.5% in FY18 to 18.2% in FY19. By FY26, it was down to 11.2%, or $6.6 billion. Singapore accounted for 33.7% and the US for 19.0%.

India can refuse lower tax rates if a company uses Mauritius mainly to get those rates. The company does not have to be using Mauritius only for tax savings for India to question the benefit.

The treaty limits India's tax on dividends and interest. The rates are 5% on dividends when the receiving company owns at least 10% of the Indian company, 15% on other dividends and 7.5% on interest. India can now refuse these lower rates if a company uses Mauritius mainly to get them.

If a company loses these tax discounts, it may pay more tax on income from India. That leaves less money for its investors.

Mauritius's share of India's FDI fell from 36% to 11%

Mauritius's share of the foreign equity money coming into India, by financial year. It halved within 2 years of India taxing gains on shares bought from April 2017.

Mauritius, % of India's FDI equity inflows

May 2016 protocol: India taxes gains on shares bought from April 2017 (Mar 2017)

New share gains taxed at up to half rate

FY26: 11.2%. Test from 10 August 2026

Equity inflows only, US$ terms. Fact sheets of March 2017, September 2018, December 2020, March 2023 and March 2026; each year from the latest one that prints it.

DPIIT (DIPP until 2019), FDI fact sheets, 2017 to 2026, country table in US$ · FY15 to FY26

Singapore and the US overtook Mauritius in India's FDI

Share of India's FDI equity inflows from its top 4 sources in FY26, against FY17. Mauritius fell from first to third.

DPIIT (DIPP until 2019), FDI fact sheets of March 2017 and March 2026, country table in US$ · FY17 and FY26

India's Mauritius tax test came 9 years after it taxed share gains

How the India-Mauritius tax treaty changed from 2016 to 2026. Gains on shares bought before April 2017 stayed outside India's tax throughout.

India-Mauritius protocols of 2016 and 2024 (Mauritius GN 156 of 2016, GN 136 of 2026); CBDT Circular 01/2025 via EY; Income Tax Department; DD News · May 2016 to Oct 2026

Sources