EconomyInternational_Relations
News 12 of 20

India-Sri Lanka DTAA Amended: Principal Purpose Test (PPT) Introduced to Curb Treaty Shopping

Target:UPSC GS-IIIMPSCBankingSSC GATeachingPrelims HighMains HighStatic GK Link
18 Jul 2026
~2 min
Source: Indian Express
Key Data:June 19, 2026April 1, 2027October 1, 2019Principal Purpose Test (PPT)Multilateral Instrument (MLI)
Bodies:Ministry of FinanceCentral Board of Direct Taxes (CBDT)OECD
Practice MCQs from today's news ▸
What This Article Covers

1.India and Sri Lanka amended their tax treaty to include the Principal Purpose Test (PPT), an anti-avoidance measure under the OECD's Multilateral Instrument (MLI).

2.The PPT denies DTAA benefits if obtaining a tax advantage is a principal purpose of an arrangement, shifting focus from legal compliance to commercial substance.

3.The protocol came into force on June 19, 2026, and will apply to Indian income from April 1, 2027, marking a stricter regime against treaty shopping.

The Big Picture
Prelims · HighMains · High

India has amended its Double Taxation Avoidance Agreement (DTAA) with Sri Lanka by introducing the Principal Purpose Test (PPT), an anti-avoidance rule from the OECD BEPS framework. This empowers tax authorities to deny treaty benefits to arrangements lacking genuine commercial substance, effective from April 1, 2027.

Exam Lens

Quick Exam Facts From News

Amended Protocol In ForceJune 19, 2026
PPT Applicability in IndiaIncome from April 1, 2027
MLI Entry into Force (India)October 1, 2019
Key Anti-Avoidance ToolPrincipal Purpose Test (PPT)
Nodal Body for Direct TaxesCentral Board of Direct Taxes (CBDT)

1-Minute Revision

  • ›Amended Protocol In Force: June 19, 2026
  • ›PPT Applicability in India: Income from April 1, 2027
  • ›Target this Data: Amended Protocol in force from June 19, 2026; Applicable in India from April 1, 2027.
  • ›Target this Nodal Body: Central Board of Direct Taxes (CBDT) under Ministry of Finance.
  • ›Target this Legal Point: Principal Purpose Test (PPT) inserted in DTAA with Sri Lanka under OECD MLI framework.

Mastered this topic? Test your knowledge with a full MCQ quiz.

Practice exam-style questions, track your score, and strengthen your recall.

Q1Static LinkageEasy

Which body under the Ministry of Finance notified the amended tax treaty with Sri Lanka?

Q2Statement-basedHard

Consider the following statements regarding the Principal Purpose Test (PPT):

1. The PPT is an anti-avoidance rule introduced to prevent treaty shopping.

2. The PPT will apply to all income derived in India starting from June 19, 2026.

3. The PPT is part of India's commitments under the OECD's Multilateral Instrument (MLI) to curb Base Erosion and Profit Shifting (BEPS).

Which of the statements given above is/are correct?

Q3Data-centricMedium

On which date did the Multilateral Convention to implement tax treaty related provisions to prevent Base Erosion and Profit Shifting (MLI) enter into force for India?

Q4Application/ImpactMedium

What is the primary implication of introducing the Principal Purpose Test (PPT) in the India-Sri Lanka DTAA for foreign investors?

All 15 MCQs ▸
You finished this topic
Explore Related Topics
Related Current Affairs
Economy Current Affairs

JCR Upgrades India's Sovereign Rating to A-; Finance Ministry Welcomes Move Citing Strong Growth

Japan Credit Rating Agency (JCR) upgraded India's sovereign rating to 'A-' from 'BBB+', citing high growth (~7%), growth-oriented policies (digital infrastructure, GST), and improved financial system (NPA ratio below 2%). This upgrade lowers India's future borrowing costs and interest burden, a positive signal for fiscal health and investor confidence.

Economy Current Affairs

Japan Credit Rating Agency Upgrades India's Sovereign Rating to 'A-' After 35 Years

Japan Credit Rating Agency (JCRA) upgraded India's sovereign credit rating to 'A-' from 'BBB+' after over 35 years, reflecting strong growth and policy credibility. This lowers India's borrowing costs and signals improved fiscal health, directly impacting taxpayer money and investor confidence.

Economy Current Affairs

World Bank ED Neelkanth Mishra: India Needs 10% Growth for Full Employment, AI Can Disrupt Education

Neelkanth Mishra, India's Executive Director at the World Bank, argues that India cannot create enough jobs for all at current growth rates, requiring 10% real growth for full employment. He highlights rising inequality as a natural outcome of labour surplus and capital shortage, and advocates democratising access to capital. He also discusses India's energy vulnerability, rupee stability, and the transformative potential of AI in education.

Economy Current Affairs

India's Q1 GDP Growth Surprises at 7.8%, Manufacturing at 9.2% Despite West Asia Crisis

India's economy defied expectations with a robust 7.8% real GDP growth in Q1 FY26, led by manufacturing at 9.2% and strong services. However, the RBI's 125 bps rate cuts and a GST cut helped, but headwinds like high oil prices (>$80/bbl), deficient monsoon, and slowing global services demand pose a serious stamina test. For exams, this is a classic 'resilience vs. vulnerability' case study for GS3.

Economy Current Affairs

JCRA Upgrades India's Sovereign Rating to A- on 7.7% GDP Growth, NPA Ratio Falls to 1.8%

Japan Credit Rating Agency (JCRA) upgraded India's sovereign rating to A- from BBB+, citing strong economic growth of 7.7% in FY2026, robust private consumption, public investment, and improvements in the banking sector. The upgrade reflects India's sustained growth trajectory and enhanced financial stability, with gross NPA ratio falling to 1.8% due to IBC and RBI supervision.

Economy Current Affairs

India's GDP Growth Stays Above 7% Amid West Asia War: 125 bps Repo Rate Cut, Low Services Inflation Key

The Indian economy has defied expectations of a sharp slowdown despite the West Asia war. GDP growth remained above 7%, inflation stayed low, and current account deficit was contained at 0.3% of GDP. Key factors include 125 bps repo rate cuts, GST cuts, and resilient services exports and low services inflation. However, risks persist from rising food inflation, potential El Niño impact, and vulnerability of services sector.

Economy Current Affairs

India-China Trade Deficit Widens 71% (2019-2025): Atmanirbhar Bharat's Assembly Trap Exposed

India's Atmanirbhar Bharat mission faces a central paradox: while domestic manufacturing expands, the trade deficit with China has ballooned 71% from 2021 to 2025, reaching $167.6 billion. Nearly 70% of imports from China are intermediate goods, exposing a deep structural dependency on Chinese supply chains that PLI and PMP schemes have failed to break.

Economy Current Affairs

Japan Credit Rating Agency Upgrades India to A- Sovereign Rating After 36 Years

Japan Credit Rating Agency upgraded India's sovereign rating from BBB+ to A- on September 2, 2026, ending a 36-year gap. This unsolicited upgrade validates India's structural reforms and macroeconomic stability, and pressures other agencies like S&P, Moody's, and Fitch to follow. The upgrade can lower risk weights for banks under Basel III, boosting bond demand and FDI.