The Supreme Court’s recent ruling against American investment firm Tiger Global in the capital gains tax dispute over its Flipkart exit marks a decisive shift in how India treats offshore investment structures.
Between 2009 and 2018, Tiger Global invested about $1.2 billion in Flipkart, routing the capital through Mauritius-based entities. When the VC firm sold its stake in the Indian e-commerce company to its eventual owner Walmert in a $1.6-billion deal, it claimed an exemption from capital gains tax under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
The bilateral treaty allows individuals and businesses operating in either country to avoid double taxation on the same income, and has positioned Mauritius as a prime jurisdiction for routing foreign investments into India. Tiger Global argued that it held a valid Mauritius Tax Residency Certificate (TRC) and that the investment was protected under the treaty’s “grandfathering” provisions, thereby not falling under India’s General Anti-Avoidance Rule (GAAR).
The Supreme Court rejected this argument, looking beyond corporate documents to determine where investment decisions were being made. It held that the Mauritius entities lacked commercial substance and functioned merely as conduits, with the “head and brain” of decision-making located in the US. The apex court ruled that treaty benefits could be denied and that an Indian capital gains tax could be imposed, overturning a 2024 Delhi High Court ruling.
By denying treaty benefits despite the TRC, the court has signalled that form will no longer override substance in cross-border investment gains taxation.
TRC no longer a shield
For decades, a Mauritius TRC was widely treated by investors as sufficient proof of eligibility for treaty benefits. The Supreme Court has now made clear that a TRC is necessary but not decisive.
The court held that tax authorities are entitled to examine whether an entity has real commercial substance, independent decision-making, and a genuine business purpose. If an entity exists primarily to obtain tax benefits, treaty protection can be denied regardless of paperwork.
This aligns Indian jurisprudence with global anti-avoidance norms, but it represents a sharp departure from investor expectations built over decades of treaty-protected capital inflows.
A central pillar of the judgment is the application of the GAAR, which prevents businesses from exploiting legal loopholes to evade taxes. Tiger Global argued that its investment was protected by the treaty as it was made before April 1, 2017, the date GAAR came into effect.
The top court disagreed. It ruled that GAAR can apply if the tax benefit is claimed after April 1, 2017, regardless of when the investment was originally made. I
Amit Baid, head of tax at law firm BTG Advaya, describes the ruling as a fundamental shift. “This marks a major, 180-degree shift in how DTAA benefits have been claimed so far,” he tells AIM. The court, he notes, has clarified that GAAR can override treaty grandfathering—application of old rules over the new—where an arrangement lacks commercial substance, making “both the investment cut-off date and the longevity of the structure irrelevant.”
Baid adds that while the ruling does not automatically reopen settled cases, it significantly strengthens the tax department’s hand in reassessment proceedings where permitted by law, including for pre-2017 investments.
Investor uncertainty over the past, not the future
While future investments can be structured within the GAAR framework, the ruling has triggered anxiety over legacy transactions.
Abhishek Agrawal, managing partner at financial non-profit Accion, notes the concern is less over new deals and more about investments already made under earlier assumptions. “I think this is a big setback,” he says. “Now this becomes the law, but it opens up uncertainties from an investor’s perspective.”
Agrawal warns that tax authorities may increasingly pursue cases post the verdict. “I think now we will see the tax authorities going after all the cases in the name of substance over form, and with that, investors will get worried about how they should really be looking at investments,” he adds.
He stresses that while investors have broadly accepted India as a full-tax jurisdiction, confidence depends on predictability. “If certain things, which have been clear and allowed in the law framework, are now being redefined in a way that puts investors’ money and expectations in question, that becomes a big challenge and opens up uncertainties for the future,” Agrawal says.
He also notes that this uncertainty comes at a time when global equity flows into India are already dwindling. In 2025, foreign portfolio investors (FPIs) sold Rs 1.59 lakh crore ($18.4 billion) worth of Indian equities. “Equity has dried up in the last 12–18 months,” he says, pointing to regulatory action, global market volatility, and reduced risk appetite. “On top of that, if investors start worrying about previous transactions, that uncertainty doesn’t help more money flow into the country.”
The ruling has serious implications for private equity funds, hedge funds, and FPIs that relied on tax structures in Mauritius or Singapore to optimise exits.
For venture-backed startups, the impact is indirect but material. Higher tax uncertainty at exit is likely to reflect in lower valuations, tougher deal terms, and increased pressure on governance and structural simplicity. Secondary sales and partial exits, common in late-stage funding, may become harder to execute cleanly.
Funds may increasingly prefer direct onshore investments or Indian alternative investment fund (AIF) structures, even if that means accepting higher headline taxes. Others may demand higher ownership stakes to offset post-tax return erosion.
Formally, the ruling does not reintroduce retrospective taxation. However, by allowing GAAR to apply to pre-2017 investments where the tax benefit arises later, it blurs a line that investors believed had been settled after the Vodafone and Cairn disputes and introducesthe possibility that long-settled structures may now be re-examined under a different interpretive lens.
The ruling decisively ends the era in which treaty shopping offered near-automatic tax protection for Indian exits. By subordinating TRCs and grandfathering provisions to GAAR and commercial substance, the court has redrawn the boundaries of cross-border tax planning.
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