Article 29 - Entitlement to Benefits (PPT / LOB)
Treaty benefits are denied where the principal purpose of the transaction was to obtain them.
Inserted by the Multilateral Instrument (MLI) for India-Canada, the Principal Purpose Test (PPT) denies treaty benefits where obtaining the benefit was one of the principal purposes of any arrangement or transaction, unless granting the benefit accords with the object and purpose of the relevant treaty provisions.
Older Limitation on Benefits (LOB) clauses survive in pre-MLI treaties (e.g. India-US Article 25), restricting benefits to qualified persons (publicly traded companies, ownership/base-erosion test, active business test, derivative-benefits test).
Domestic backstop: India's General Anti-Avoidance Rule (GAAR) under Section 415 of IT Act 2025 (formerly Section 95 of the 1961 Act) operates in parallel and can override treaty benefits in egregious cases.