CHENNAI: The Supreme Court’s ruling against Tiger Global, closely watched by the global investor community, signals a significant shift in how India interprets and enforces tax rules on foreign investments routed through treaty jurisdictions such as Mauritius, underscoring a tougher stance on substance and treaty abuse. At its core, the verdict reinforces the principle that tax benefits under international treaties are available only to investors with real economic presence in those jurisdictions, not to entities created solely to minimise tax exposure.
The Supreme Court on Thursday delivered its final verdict on this tax case since January, 2025 in which Indian tax authority imposed tax claim on Tiger Global on the profits that it made on the sale of its 12% stake in India's ecommerce platform Flipkart to Walmart. A bench of Justices R. Mahadevan and J.B. Pardiwala ruled that Tiger Global’s Mauritius-based entities did not have genuine commercial substance and were used as conduits primarily to obtain treaty benefits.
The court held that capital gains arising from the 2018 Flipkart stake sale are taxable in India and that holding a Tax Residency Certificate (of Mauritius) is not sufficient to claim treaty protection without real economic substance. The apex court set aside an early Delhi High Court judgment and restored the revenue’s position.
Following the apex court ruling, tax authorities immediately moved to resume assessment proceedings that had been on hold. Authorities said the approximately Rs 968 crore refund claimed by Tiger Global could be adjusted against tax demands consistent with the Supreme Court’s decision. The tax department may now complete assessments and pursue the capital gains tax demand under the Supreme Court’s framework. The judgment also reiterated that anti-avoidance rules apply when a tax benefit is claimed on or after April 1, 2017, even if the investment was made earlier.
The implication
The court held that merely being incorporated in Mauritius or holding a tax residency certificate is not sufficient to claim treaty protection if the entity lacks genuine commercial substance. In the Tiger Global case, the structure was found to be primarily designed to take advantage of the India–Mauritius tax treaty, particularly the exemption from capital gains tax on the sale of Indian shares. The ruling makes it clear that Indian tax authorities are entitled to look beyond the legal form of an investment vehicle and examine its real purpose, decision-making structure, and economic activity.
The immediate implication of the verdict is a tightening of scrutiny on foreign portfolio investors and private equity funds that use Mauritius-based or similar treaty entities to invest in Indian companies. Funds will now need to demonstrate that these entities have real operations, independent management, and economic substance, rather than functioning as pass-through vehicles controlled from elsewhere. Structures that rely heavily on paper presence, nominee directors, or minimal staff are likely to come under closer examination.
The ruling also has broader consequences for treaty-based investments beyond Mauritius. It strengthens India’s long-standing position against treaty shopping and reinforces the application of the “substance over form” doctrine. This could affect investments routed through other low-tax or treaty-friendly jurisdictions such as Singapore or the Netherlands, particularly where structures appear artificial or primarily tax-driven. Investors may face greater uncertainty if they cannot clearly establish that their offshore entities serve a legitimate commercial purpose.
Another important implication relates to indirect share transfers. The court’s observations may embolden tax authorities to scrutinise transactions where foreign entities sell shares of offshore holding companies that derive substantial value from Indian assets. If such structures are found to lack substance, they could be brought within India’s tax net, increasing potential tax liabilities for global investors.
India-Mauritius tax treaty
The India–Mauritius tax treaty, formally known as the Double Taxation Avoidance Agreement (DTAA), was signed in 1983 at a time when India was seeking to attract foreign capital while avoiding double taxation of income earned across borders. Under the treaty, capital gains arising from the sale of shares of Indian companies were taxable only in the country of residence of the investor. Since Mauritius did not levy capital gains tax, this effectively exempted such gains from tax, making the island nation a preferred route for foreign portfolio and private equity investments into India for more than two decades. The arrangement coincided with India’s post-liberalisation phase and played a significant role in channeling overseas capital into Indian equities, particularly from global funds using Mauritius-based holding structures.
The core objective of the treaty was to promote cross-border investment, prevent double taxation, and provide certainty to investors by clearly allocating taxing rights between the two countries. Over time, however, concerns grew in India about treaty abuse, “round-tripping” of domestic funds, and the use of shell entities with little real economic activity in Mauritius. This led to a series of amendments and clarifications, culminating in the 2016 protocol that granted India the right to tax capital gains on shares acquired after April 1, 2017, while grandfathering older investments. The revised framework also introduced a limitation of benefits clause, requiring investors to demonstrate commercial substance in Mauritius. The process reflects India’s broader shift from a treaty-driven tax incentive regime to one that balances investment facilitation with anti-avoidance safeguards and source-based taxation.
Global investment perspective
From a policy perspective, the SC verdict aligns with India’s broader effort to curb aggressive tax planning and align domestic tax enforcement with global standards under initiatives such as the OECD’s Base Erosion and Profit Shifting framework. It signals that while India remains open to foreign capital, it expects transparency, genuine business presence, and compliance with the spirit of tax treaties rather than their mechanical use.
For foreign investors, the ruling is likely to prompt a reassessment of existing investment structures and future deal planning. Funds may need to invest more in building real operations in treaty jurisdictions or consider alternative structures that are defensible under Indian tax law. In the near term, this could raise compliance costs and slow transaction timelines, but over the longer run it may lead to cleaner, more robust investment frameworks.
Overall, the Supreme Court’s verdict sends a clear message that tax treaties are not shields for artificial arrangements. It strengthens India’s hand in taxing cross-border investments and reshapes the risk calculus for global funds operating in one of the world’s most important emerging markets.