NEW DELHI — In a judgment that will redefine the landscape of cross-border investments, the Supreme Court of India ruled on Thursday, January 15, 2026, that American investment giant Tiger Global is liable for capital gains tax on its 2018 exit from Flipkart.
The verdict effectively restores a tax demand estimated at ₹14,500 crore ($1.7 billion), dealing a significant blow to the “Mauritius route” traditionally used by global private equity firms.
1. Substance Over Form: The GAAR Hammer
The court set aside a 2024 Delhi High Court ruling, holding that Tiger Global’s Mauritius entities were “conduits” lacking real commercial substance.
- Impermissible Arrangement: The bench held that the transaction was an “impermissible tax avoidance arrangement” designed specifically to bypass Indian tax laws.
- GAAR Application: The court ruled that India’s General Anti-Avoidance Rules (GAAR) can be applied to scrutinize the “substance” of an entity, regardless of whether it holds a valid Tax Residency Certificate (TRC).
- Burden of Proof: Under Section 96(2) of the Income Tax Act, the onus was on Tiger Global to prove the transaction wasn’t for tax avoidance—a burden the court says the firm failed to meet.
2. The “Grandfathering” Clause Diluted
Tiger Global had argued its investments were protected by the “grandfathering” clause in the 2016 India-Mauritius treaty amendment, as the shares were acquired between 2011 and 2015 (before the April 1, 2017 cut-off).
- The Ruling: The Court held that the cut-off date is “diluted” if the tax benefit is obtained through an arrangement on or after April 1, 2017.
- Indirect Transfers: The bench clarified that Article 13(4) of the DTAA only protects direct transfers of shares. Since Tiger Global sold shares of a Singapore-based holding company (Flipkart Singapore) that derived value from Indian assets, it was deemed an “indirect transfer” not covered by the treaty.
3. A New Era of “Tax Sovereignty”
In a forceful concurring opinion, Justice JB Pardiwala emphasized that taxing income generated from Indian soil is an “inherent sovereign right.”
“Any dilution of this power through artificial arrangements is a direct threat to [India’s] sovereignty and long-term national interest,” the judgment stated.
Impact on Global Investors: | Entity Type | Implication | | :— | :— | | Private Equity (PE) | Must reassess historical holding structures and exit strategies. | | Venture Capital (VC) | Increased scrutiny of “layered” investments through Mauritius or Singapore. | | FPIs | Potential increase in tax litigation and demand for “Tax Insurance.” |