Other BriefingsTiger Global-Flipkart Tax Dispute: A Landmark Test of India’s Anti-Avoidance Regime
The Supreme Court’s January 2026 ruling in the Tiger Global–Flipkart case reinforces India’s substance-over-form approach to taxing offshore investment structures. The Court affirmed that tax authorities may deny treaty benefits under GAAR even when investors hold valid Tax Residency Certificates, thereby reducing reliance on documentation alone.
For foreign investors, the ruling signals increased scrutiny of intermediary holding structures and highlights the importance of establishing clear commercial substance, especially when planning exits or reviewing legacy investments in India.
Tiger Global reportedly realized capital gains of around US$1.6 billion from the transaction. The Indian Income Tax (IT) Department subsequently asserted that these gains were taxable in India, triggering a legal challenge that ultimately reached the country’s apex court.
Background of the dispute and competing tax positions
The dispute centers on Tiger Global’s investment structure for its Indian holdings. Like several foreign investors at the time, the firm routed its investments through entities incorporated in Mauritius. Under the India-Mauritius Double Taxation Avoidance Agreement (DTAA), capital gains from the sale of shares were historically taxable only in Mauritius, subject to prescribed conditions.
Tiger Global claimed exemption from Indian capital gains tax based on two criteria:
- The grandfathering provisions applicable to investments made before April 2017, and
- Valid Tax Residency Certificates (TRCs) issued to its Mauritius-based holding entities.
The Indian tax authorities challenged this structure, contending that the Mauritius entities functioned as conduit or shell companies lacking commercial substance and independent decision-making. The IT Department further argued that the economic value of the transaction was derived from Indian assets, thereby justifying taxation in India.
On this basis, the authorities invoked India’s General Anti-Avoidance Rules (GAAR) and other domestic anti-avoidance provisions to deny treaty benefits.
Key judicial timeline
This judgment signals a decisive shift in India’s tax enforcement approach. Investors relying on legacy offshore structures should reassess their arrangements, particularly for exit planning, as substance and commercial rationale will now outweigh formal treaty documentation. – International Tax Advisory, Dezan Shira & Associates India
Authority for Advance Rulings (AAR) – 2020
The AAR declined to issue a favorable advance ruling, observing that the arrangement appeared to be primarily designed to obtain tax benefits.
Delhi High Court – 2024
The Delhi High Court ruled in favor of Tiger Global, holding that the grandfathering provisions applied and that treaty benefits under the India-Mauritius DTAA could not be denied solely on the basis of the investment structure.
Supreme Court of India – January 15, 2026
The Supreme Court overturned the Delhi High Court’s ruling and held that:
- Capital gains arising from the Flipkart exit were taxable in India;
- Treaty benefits under the India-Mauritius DTAA may be denied where the structure constitutes a tax avoidance arrangement, even if valid TRCs are produced; and
- GAAR was correctly invoked, as the Mauritius entities lacked genuine commercial substance.
This ruling restored the tax department’s position and is binding, subject only to limited review proceedings.
Substance over documentation: The Supreme Court’s clarification
The Supreme Court has clarified that while a TRC is a necessary requirement for claiming treaty benefits, it is not conclusive. Indian tax authorities are entitled to examine whether the entity claiming treaty protection has genuine economic substance or merely operates as a conduit established for tax advantage.
In reaffirming this principle, the Court, in its latest judgement, underscored that treaty benefits cannot be granted solely on the basis of formal documentation where the underlying arrangement appears artificial or abusive.
The Supreme Court’s ruling makes it clear that treaty benefits cannot rest on paperwork alone. Foreign investors must now demonstrate real commercial substance, decision-making authority, and economic presence in their holding structures to withstand GAAR scrutiny. – Krishan Aggarwal, Operations Director, Dezan Shira & Associates India
Financial and practical impact
The tax demand raised by the Indian authorities is estimated at approximately INR 145 billion (US$1.59 billion), inclusive of tax, interest, and penalties. The final payable amount will depend on post-judgment assessments and computations by the tax authorities.
Understanding the role of a TRC
A TRC is an official document issued by a country’s tax authority confirming that an individual or entity is a tax resident of that jurisdiction for a specified period. In India, a TRC is a mandatory requirement for claiming benefits under a tax treaty.
Historically, TRCs were often treated as sufficient proof of treaty eligibility. The Supreme Court’s January 2026 ruling marks a clear departure from this approach, establishing that a TRC does not bar further inquiry into the substance and purpose of an investment structure.
While TRCs remain relevant, they no longer provide automatic insulation from detailed tax scrutiny where concerns over treaty abuse arise.
Why the judgment matters
The ruling notably strengthens India’s tax department’s ability to investigate alleged treaty abuse, including cases of “treaty shopping” where intermediary jurisdictions are used primarily to minimize tax exposure. By allowing competent authorities to look beyond legal form and examine commercial reality, the judgment lowers the threshold for sustaining or reopening tax demands involving layered offshore structures.
From a policy perspective, the decision reinforces India’s position that tax treaties cannot legitimize arrangements lacking economic substance, even where procedural requirements have been met.
How the investment landscape has shifted
For nearly two decades, Mauritius served as a preferred investment gateway for foreign funds investing in Indian equities and startups, at one stage accounting for over 30 percent of cumulative foreign direct investment inflows. Leading global private equity and venture capital firms structured their India exposure through Mauritian entities, supported by routine submission of TRCs.
Although tax authorities periodically raised concerns over such structures, courts generally treated TRCs as strong evidence of treaty eligibility unless clear misconduct was established. The Supreme Court’s ruling narrows this comfort zone by signaling that documentation alone may be insufficient where economic substance is questioned.
ALSO READ: India Clarifies Tax Treaties with Mauritius, Cyprus, and Singapore
Tiger Global’s footprint in India
As per market analysts, Tiger Global has been among the most active foreign investors in India’s technology sector over the past decade. Between 2013 and 2021, it backed numerous startups across e-commerce, fintech, logistics, and consumer internet segments. Its portfolio has included companies such as Flipkart, Razorpay, Dream11, Groww, Meesho, ShareChat, Gupshup, Infra.Market, and Chargebee.
The Flipkart divestment was one of Tiger Global’s most prominent exit events in India. As of the end of 2025, the firm reportedly held stakes in approximately 20-30 Indian companies, with an estimated valuation of US$2-4 billion.
Understanding India’s GAAR and treaty abuse framework
What is GAAR?
The General Anti-Avoidance Rule (GAAR) empowers Indian tax authorities to deny tax benefits where arrangements are structured primarily to avoid tax, even if they formally comply with legal requirements.
- Statutory basis: Chapter X-A of the Income-tax Act, 1961.
- Effective date: April 1, 2017
- Objective: Curb aggressive tax planning and treaty shopping
GAAR allows authorities to prioritize economic substance over legal form.
When does GAAR apply?
GAAR applies to an impermissible avoidance arrangement where the main purpose is to obtain a tax benefit and any one of the following tests is met:
- Commercial substance test – absence of real operations, personnel, or decision-making authority
- Rights and obligations test – artificial creation of rights or obligations to secure tax benefits
- Misuse or abuse of law – exploitation of loopholes in treaties or domestic law
- Non-arm’s-length test – deviation from normal commercial practices
Satisfying any one condition is sufficient to trigger GAAR.
Consequences of GAAR invocation
Once GAAR is applied, tax authorities may:
- Deny treaty benefits, including capital gains exemptions
- Disregard intermediary entities
- Recharacterize indirect transfers as direct Indian transactions
- Reallocate income to India
- Levy tax, interest, and penalties
Indian courts consistently uphold substance-over-form principles in such cases.
GAAR versus treaty protection
Under Indian law, GAAR overrides tax treaties. Even where a treaty provides exemption, benefits may be denied if GAAR applies, a position now firmly upheld by the Supreme Court.
Implications for foreign investors
The Tiger Global’s 2026 ruling marks a clear shift from reliance on formal documentation to a substance-based assessment of offshore structures. It establishes that:
- Paper compliance alone is insufficient
- Authorities will closely examine control, risk allocation, and operational substance
- Treaty shopping without economic justification is unlikely to withstand challenge
Strategic takeaways
Foreign investors should:
- Build demonstrable substance in holding jurisdictions
- Ensure investment structures reflect genuine commercial rationale
- Reassess exit strategies with GAAR exposure in mind
- Align tax provisioning and valuations with heightened scrutiny
Conclusion
The Tiger Global-Flipkart judgment reinforces a central principle of Indian tax law: transactions will be taxed based on their true economic character, not merely their legal form.
The ruling firmly establishes that treaty benefits are not automatic and that offshore structures lacking real substance face significant tax risk under India’s GAAR and anti-avoidance framework.
(US$1 = INR 90.77)
About Us
India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Vietnam, Indonesia, Singapore, Malaysia, Mongolia, Dubai (UAE), Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.
For a complimentary subscription to India Briefing’s content products, please click here. For support with establishing a business in India or for assistance in analyzing and entering markets, please contact the firm at india@dezshira.com or visit our website at www.dezshira.com.
- Previous Article India’s Manufacturing Appeal is Rising – Even as Asia’s Competition Intensifies
- Next Article
