India Reassures Investors After Tiger Ruling Prompts Concerns

Since the Supreme Court of India’s decision in AAR v. Tiger Global International II Holdings, few issues have consumed the attention of foreign investors in India more than the fate of pre-2017 investments routed through Mauritius and similar treaty jurisdictions.

The ruling recalibrated a framework that had been relied on by overseas investors structuring their India investments through the India-Mauritius tax treaty.

According to the highlights of the Mauritian Cabinet meeting held April 3, the Mauritian Prime Minister raised the concerns around the court’s decision directly with the Indian Prime Minister. The Cabinet meeting note records that the Indian Prime Minister gave an assurance of India’s continued stand of not taking any action that would undermine the benefits that Mauritius currently enjoys under the India-Mauritius tax treaty.

The Indian government partially addressed this by introducing a pair of amendments in the Indian Income-tax Rules, 1962, and the Income-tax Rules, 2026, in a move that may be seen as an effort to signal to global capital that India remains a predictable place in which to invest.

The corrective amendments introduced just two months after the court’s ruling illustrate the willingness of India’s legislative and executive machinery to course correct when judicial interpretation overshoots the policy intent of attracting global investment into India.

The Mauritian Cabinet also formally noted the amendments, observing that the new rules are expected to provide reassurance and certainty to foreign investors and private equity funds with respect to the taxation of exits from such investments.

The amendments do provide meaningful relief, but they don’t address every concern arising from the court’s decision.

Supreme Court Ruling

The Mauritian entities within the Tiger Global group had acquired shares in Flipkart Private Limited, Singapore between 2011 and 2015. When Walmart acquired Flipkart in 2018, the Mauritian entities realized capital gains on what amounted, under Indian domestic law, to an indirect transfer of Indian investments. They sought exemption under the India-Mauritius tax treaty, relying on their tax residency certificates and arguing that investments made before April 1, 2017, were protected from scrutiny under India’s General Anti-Avoidance Rule, or GAAR.

The Supreme Court concluded that the GAAR could be invoked even where the underlying investment predated April 2017, if the exit and the consequent tax benefit arose on or after that date. In the court’s reading, Rule 10U(2) of the 1962 Rules, which allowed the GAAR to apply to any “arrangement,” irrespective of its date, yielding a tax benefit after April 2017, operated to dilute the protection in Rule 10U(1)(d), which shielded income from the transfer of pre-2017 “investments.”

Government Response

The Central Board of Direct Taxes issued two notifications, No. 54/2026, and No. 55/2026, amending Rule 10U of the1962 Rules and the corresponding Rule 128 of the 2026 Rules, which governs the GAAR under the newly enacted Income-tax Act, 2025.

The amendments are targeted in their design. The amended Rule 10U(2) states that while the GAAR applies to “arrangements” irrespective of when they were entered into, it won’t apply to income arising from the transfer of such “investments” that were made before April 1, 2017. Parallel changes have been made to Rule 128 of the 2026 Rules.

The effect appears to restore the legacy protection that the Supreme Court’s interpretation had eroded. Accordingly, the GAAR may no longer be deployed to deny treaty benefits on the sale of shares acquired before April 2017.

What’s Still Unresolved

The court’s finding that a tax residency certificate isn’t, by itself, sufficient to claim treaty benefits, stays unchanged. The court’s observation that Article 13(4) of the India-Mauritius treaty applies only to direct transfers of shares, and doesn’t extend to indirect transfers, remains.

Further, in terms of the ruling, the judicially developed doctrine of “substance over form”—judicial anti-avoidance rule—and any specific anti-avoidance rules or limitation-of-benefit clauses contained in applicable tax treaties, may still be available to the Indian tax authorities as alternative grounds for denying treaty benefits, even where the GAAR itself can’t be invoked.

There is also a temporal limitation. The amended rules take effect from March 31 in respect of the 1962 Rules and from April 1 for the 2026 Rules. Accordingly, where the GAAR has already been invoked in proceedings started before these dates, taxpayers may need to argue their position based on the unamended rules.

The Indian tax department’s formal interpretation of the new provisions is also awaited, and the rules remain untested in litigation. A reading of the amendments may be construed to mean that while transfer of investments which were made prior to April 1, 2017 could remain outside the scope of the GAAR, any other income, such as dividends or interest, arising on or after April 1, 2017, from investments made before such date could still be subject to the GAAR.

Looking Ahead

The amendments may remove the most immediate source of anxiety after the court’s decision—the prospect that the GAAR could be used to reach back and tax exits from legacy positions.

However, the ruling raised the evidential threshold for claiming treaty protection, and the amendments to the GAAR don’t lower it.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Aditya Singh Chandel is partner and Akshat Jain is a senior associate with AZB & Partners in India.

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