India had received $8.97 billion during April-February 2012-13.
According to an expert, investors are apprehensive that they may lose the tax benefit after introduction of GAAR (General Anti Avoidance Rules) provision.
"It is also feared that the re-negotiated Double Taxation Avoidance Agreement (DTAA) would eliminate the tax advantage which the Mauritian investors enjoy," Head of Tax and expert on FDI with corporate law firm Amarchand & Mangaldas, Krishan Malhotra said.
The controversial GAAR provision, which seeks to check tax avoidance by investors routing their funds through tax havens, will come into effect from April 1, 2016 in India.
The GAAR provision will apply to entities availing tax benefit of at least Rs 3 crore.
The India-Mauritius DTAA is being revised amid concerns that Mauritius is being used for round-tripping of funds into India even though that country has always maintained that there have been no concrete evidence of any such misuse.
Both sides have been discussing the treaty revision for quite sometime now.
Mauritius has been one of the biggest sources of FDI into India, which attracted inflows of $78.15 billion FDI from that country between April 2000 and February 2014.
Mauritius accounts for 37 per cent of the country's total foreign direct investment.
Foreign investments are crucial for India, which needs about $1 trillion by March 2017 to overhaul infrastructure such as ports, airports and highways and boost growth.
The decline in foreign investments could affect the country's balance of payments and the rupee value.
Overall foreign inflows into the country have declined to $18.79 billion during the first 10 months of 2013-14, from $19.10 billion in April-January 2012-13.