CBDT Provides Clarity on Application of PPT in India’s DTAAs, No impact on GAAR, SAAR, or JAAR

The Central Board of Direct Taxes (CBDT) issued a clarification press release regarding Circular No. 01/2025, addressing the application of the Principal Purpose Test (PPT) under India’s Double Taxation Avoidance Agreements (DTAAs).

The CBDT stated that the PPT provision applies only to DTAAs that explicitly contain a PPT clause. This means the Circular does not extend to treaties that lack such a provision. The Board clarifies that the application of PPT in DTAAs does not interfere with other treaty provisions used for determining treaty benefits or entitlement eligibility.

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The Board also clarified that the Circular does not interact with or override India's domestic anti-abuse rules, such as:

• General Anti-Avoidance Rule (GAAR)
• Specific Anti-Abuse Rules (SAAR)
• Judicial Anti-Abuse Rules (JAAR)

These frameworks will continue to operate independently without being affected by the PPT’s interpretation.

The CBDT explained that this clarification does not introduce any new legal interpretations but simply explains the intended application of the PPT provision under relevant DTAAs.

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This clarification is expected to assist taxpayers, businesses, and tax professionals in understanding the scope of the PPT provision and its implications on cross-border taxation.

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