India updates Sri Lanka tax treaty to prevent double taxation
India has refreshed its tax treaty with Sri Lanka to crack down on revenue loss and stop people from misusing loopholes.
Starting April 1, 2027, the new rules aim to prevent double taxation (so you are not taxed twice for the same income) and make it harder for companies or individuals to dodge taxes by hopping between countries.
The finance ministry has notified the amended protocol.
Principal purpose test denies treaty benefits
The big change is something called the Principal Purpose Test (PPT). This lets tax officials deny treaty benefits if they think someone's main goal is just to save on taxes, not actually do real business between the two countries.
Experts say this should help curb "treaty-shopping" and bring India in line with global standards.
Similar rules are already in place with countries like Chile, Iran, and Hong Kong.