CBDT Notifies Protocol Amending the India–Sri Lanka DTAA

The Central Board of Direct Taxes (CBDT) has notified the Protocol amending the India–Sri Lanka Double Taxation Avoidance Agreement (DTAA) through Notification No. 88/2026-Income Tax dated 16 July 2026. The Protocol entered into force on 19 June 2026 and will apply in India for income derived in fiscal years beginning on or after 1 April following the calendar year in which it entered into force.

Key Changes

1. Revised Preamble
The amended preamble clarifies that the DTAA aims to eliminate double taxation while promoting economic cooperation, without creating opportunities for tax evasion, tax avoidance, or treaty shopping.

2. Introduction of the Principal Purpose Test (PPT)
A new anti-abuse provision has been incorporated under which treaty benefits may be denied where it is reasonable to conclude that obtaining such benefits was one of the principal purposes of an arrangement or transaction, unless granting the benefit is consistent with the object and purpose of the treaty.

Why It Matters

The amendment aligns the India–Sri Lanka DTAA with the OECD BEPS minimum standards and reinforces India's commitment to preventing treaty abuse. Businesses and investors relying on treaty benefits should ensure that their cross-border structures are supported by genuine commercial substance and business purpose.

Taxpayers with investments or operations involving India and Sri Lanka should review existing arrangements to assess the potential impact of the new anti-abuse provisions.

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