The government on Wednesday clarified that capital gains from assets acquired before 1 April 2017 will be exempted from tax. The clarification comes as fallout of the Tiger Global ruling, in which the Supreme Court denied the US private equity firm Mauritius tax treaty benefits on capital gains it made on the sale of unlisted Flipkart shares in 2018.
The Central Board of Direct Taxes (CBDT) has notified changes in Rule 128 of the Income-tax Rules, 2026 to clarify that capital gains accrued up to 1st April 2017 are protected from subsequent changes in tax regulations. The notification further says that the tax treatment of capital gains on assets acquired prior to 1st April 2017 is unlikely to be subject to renewed scrutiny by the authorities, whether in terms of substance or under the General Anti-Avoidance Rules (GAAR).
Riaz Thingna, Partner, Grant Thornton Bharat, says the clarification is a result of the Tiger Global ruling, which had created uncertainty over the applicability of grandfathering provisions in respect of assets acquired prior to 1st April 2017. “The issue was further compounded by the fact that, under the new Income-tax Act, these provisions were not specifically addressed,” he says.
According to Sandeep Sehgal, partner, Tax, AKM Global, by refining the language and expressly ring-fencing capital gains from investments made prior to 1 April 2017, it reinforces the original intent that such legacy investments should remain outside the ambit of GAAR.
However, experts say that the amendment does not alter the outcome of the Tiger Global case, which was driven by indirect transfer considerations and therefore, its applicability in the GAAR grandfathering context may be limited.
However, they say the clarification effectively resolves the interpretational uncertainty highlighted in that ruling on the interplay between GAAR and grandfathering where tax benefits arise post-2017.
Sandeepp Jhunjhunwala, M&A Tax Partner at Nangia Global Advisors, says that the purposive and substance-over-form construction reinforced by the Supreme Court’s 2026 Tiger Global ruling suggests that grandfathering does not automatically insulate the underlying arrangement and GAAR may still apply where the structure lacks commercial substance or is primarily tax-driven, regardless of the timing of investment, and treaty benefits or TRC do not automatically preclude such examination.