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New Delhi/Lucknow. The Government of India has struck a major and decisive blow against international tax evaders and rogue investors who wrongly take advantage of tax exemptions. The Central Government has made a major historic amendment to the decades-old Double Taxation Avoidance Agreement (DTAA) between India and Sri Lanka. According to the official notification issued by the Ministry of Finance, under this change, a strict and new rule has now been implemented, after which any transaction or artificial business structure done only for the purpose of saving or manipulating tax will not be given any benefit of this bilateral tax agreement. This amendment has officially become effective from June 19, 2026, after completion of the necessary legal processes in both the countries, whereas in India, its ground impact will be clearly visible on the income earned from the financial year 2027-28.

Brahmastra of ‘Principal Purpose Test’ (PPT) implemented, understand what is the new rule

Under this new amendment to the tax treaty Principal Purpose Test (PPT) A very effective rule named has been added. To put it in simple and practical terms, if the Indian Tax Authorities, during a thorough investigation, find solid evidence that the main and primary objective of any specific transaction or business structure entered into by a foreign company or individual was only to obtain huge tax exemption, then it will be immediately deprived of all the special benefits available under the India-Sri Lanka Tax Treaty.

For example, if a multinational company sets up a fake or shell company in Sri Lanka only on paper to avoid paying taxes in India and has no actual physical presence, employees or actual business there, then after investigation it will not get any kind of tax relief. The government has made it clear that this ‘tax planning’ done through paper companies will now be completely banned.

Companies doing genuine and legal business have no worries

The Finance Ministry has made it completely clear in its notification that international companies and genuine investors whose functioning is completely legal, transparent and in accordance with the rules, there is no need to be even the slightest bit nervous or worried about this new change. If the main purpose of a business transaction is to expand genuine business, invest in infrastructure or conduct any legitimate economic activity and is consistent with the spirit of this tax agreement, they will continue to enjoy all the tax benefits and concessions as before without any hindrance.

No change in tax rates, main objective is to increase transparency

Tax experts and market analysts say that this step of the government will not have any negative impact on the domestic or foreign market, because under this amendment neither any new tax has been imposed nor any change has been made in the currently applicable tax rates. Its sole objective is to ensure that no one can misuse this agreement between the two friendly countries and to curb the tendencies of reducing the tax base through artificial means. According to experts, this historic change is part of the ongoing joint efforts of G-20 and OECD at the global level, the main objective of which is to stop tax evasion and shifting of profits to other low tax countries (Base Erosion and Profit Shifting – BEPS). This will make India’s tax system more transparent and create a healthy and reliable investment environment between the two neighboring countries.