CBDT Issues Clarification on PPT’s Circular; GAAR/SAAR Continue to Operate Independently

Press Release, dated 15-03-2025

The Central Board of Direct Taxes (CBDT) vide circular 01/2025, dated 21-01-2025, issued guidelines on the application of the Principal Purpose Test (PPT) under India’s Double Taxation Avoidance Agreements (DTAAs). The circular clarifies the implementation of PPT, a measure introduced to prevent the misuse of tax treaties, as part of India’s commitment to the Multilateral Convention to Implement Tax Treaty Related Provisions to Prevent Base Erosion and Profit Shifting (MLI). The circular explains that the application of the PPT is prospective.

Now, the board has issued the following clarification on the application of the PPT provision under India’s DTAA:

a) The Circular applies only to the PPT without affecting other provisions of the Income-tax Act. It is not intended to interfere or interact with any other provision of the Indian DTAAs, including such provisions that may be invoked for the examination of treaty entitlement or denial of treaty benefits, other than the PPT.

b) The Circular is not intended to interfere or interact with anti-abuse rules under domestic law, such as General Anti-Abuse Rules (GAAR), Specific Anti-Abuse Rules (SAAR), and Judicial Anti-Abuse Rules (JAAR) reflected in or resulting from judicial interpretations. Such rules shall continue to operate independently.

c) The clarification does not introduce any new legal interpretation but reaffirms that the Circular applies only to the PPT without affecting other provisions of the Income-tax Act.

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