For over two decades, routing foreign investment into India through Mauritius or Singapore was a widely used structuring strategy. A tax residency certificate (TRC), combined with treaty-based capital gains exemptions and administrative comfort from Central Board of Direct Taxation (CBDT) guidance (Circulars 682 and 789) made the approach feel low-risk and predictable. That landscape shifted on 15 January 2026, when India’s Supreme Court issued a landmark decision in Tiger Global International III Holdings and others. The court held that a TRC is not conclusive proof of eligibility for tax treaty benefits, a significant departure from the long-standing judicial view that a TRC alone sufficed and that the general anti-avoidance rule (GAAR) could be invoked in cases where commercial substance was lacking (for prior coverage, see the article in the February 2026 issue of Corporate Tax News). In response, the CBDT issued two circulars aimed at mitigating the impact of the Supreme Court decision.
The Tiger Global case involved Mauritius-incorporated investment companies holding Category-I Global Business Licences and valid TRCs under the India–Mauritius tax treaty. The taxpayers had structured their investments through Mauritius holding entities between 2011 and 2015, well before India's GAAR took effect on 1 April 2017.
The taxpayers held shares in a Singapore company whose value was substantially derived from assets in India. These shares were sold to a Luxembourg entity as part of a broader acquisition, generating substantial capital gains. Before the transfer, the taxpayers requested nil withholding certificates from the Indian tax authorities on the basis that the gains were exempt under the India-Mauritius treaty. The authorities denied the request, citing a lack of independent decision-making, and required tax to be withheld. After extensive litigation—including a favourable Delhi High Court ruling in August 2024—the Supreme Court resolved the matter in January 2026.
The Supreme Court applied the GAAR, concluding that the Mauritius structure was primarily tax-driven, rather than commercially grounded. In doing so, it elevated substance over legal form and signalled a stricter stance against treaty shopping. Although the decision spans more than 100 pages, its practical impact can be distilled into three distinct shifts.
TRCs no longer provide complete protection
Historically, a TRC issued by a foreign tax authority was treated as near-conclusive evidence of treaty benefit entitlement. The Supreme Court clarified that while a TRC is relevant evidence, it is not determinative. Where the authorities have reason to question commercial substance, they may examine the underlying facts. The court also noted that earlier administrative guidance elevating the status of TRCs must be interpreted in light of subsequent legislative and treaty developments, including the Finance Act 2013 and revisions to the India-Mauritius tax treaty.
Pre-2017 investments did not escape the GAAR
Rule 10U(1)(d) of the Indian Income-tax Rules, 1962 grandfathered investments made before 1 April 2017 from the application of the GAAR. Tiger Global's investments (2011-2015) fell squarely within this window. However, the Supreme Court held that Rule 10U(2), which applied the GAAR to any arrangement generating a tax benefit on or after 1 April 2017 regardless of when the underlying investment was made, operated “without prejudice” to the grandfathering clause. As a result, the protection against the GAAR was effectively neutralised.
Commercial substance is paramount
The Supreme Court ruling reinforces that treaty benefits depend on genuine commercial substance. In evaluating the facts, the court considered factors such as:
The Supreme Court’s interpretation of the GAAR provisions had raised concerns about the potential reach of the GAAR to legacy investments, particularly where sales or transfers took place after 1 April 2017. In response to extensive representations from taxpayers and advisors, the CBDT issued two notifications—Notification 54/2026 amending Rule 10U of the Income Tax Rules 1962 and Notification 55/2026 making a parallel amendment to Rule 128 of the Income Tax Rules 2026, which governs the new Income-tax Act 2025 (effective 1 April 2026). Both notifications clarify the intended scope of the GAAR to pre-1 April 2107 investments. The key intervention was surgical: the “without prejudice” language in sub-rule (2)—the very phrase relied on by the Supreme Court—was deleted. In its place, the rules now expressly exclude income arising from the transfer of investments before 1 April 2017 from the GAAR's ambit.
The Explanatory Memorandum to Notification 54 reinforces this policy intent, stating that the GAAR is not intended to apply where gains arise from the transfer of pre-1 April 2017 investments.
One reading of the amendment to the GAAR rules is that it creates a clear, explicit carve-out: gains from the transfer of investments made before 1 April 2017 fall outside the scope of the GAAR and, in the absence of the GAAR, a TRC could be viewed as conclusive for entitlement to treaty benefits.
However, a more cautious interpretation is equally plausible. The amendments are narrowly targeted at the GAAR and do not disturb the broader legal framework governing treaty entitlement or anti-avoidance. The principles articulated by the Supreme Court therefore continue to have relevance. In particular:
For foreign private equity and venture capital investors holding pre-1 April 2017 investments, the amendment provides meaningful comfort: the GAAR should not apply to gains arising on exit. That said, this does not eliminate scrutiny on questions of commercial substance, tax treaty entitlement or judicial anti- avoidance. Future judicial or administrative developments may further refine the landscape.
For investments made on or after 1 April 2017, anti-avoidance rules apply from inception. Each element of the structure—including jurisdictional choice, holding arrangements and exit strategy—must withstand scrutiny based on demonstrable genuine commercial purpose and economic substance.
Documentation remains critical. Contemporaneous records of investment rationale, governance processes, decision-making authority, and local operational or economic substance will be central to supporting treaty claims and managing dispute risk.
Mihir Gandhi
Piyush Kalanoria
BDO in India
Background and the Supreme Court Decision
The Tiger Global case involved Mauritius-incorporated investment companies holding Category-I Global Business Licences and valid TRCs under the India–Mauritius tax treaty. The taxpayers had structured their investments through Mauritius holding entities between 2011 and 2015, well before India's GAAR took effect on 1 April 2017.The taxpayers held shares in a Singapore company whose value was substantially derived from assets in India. These shares were sold to a Luxembourg entity as part of a broader acquisition, generating substantial capital gains. Before the transfer, the taxpayers requested nil withholding certificates from the Indian tax authorities on the basis that the gains were exempt under the India-Mauritius treaty. The authorities denied the request, citing a lack of independent decision-making, and required tax to be withheld. After extensive litigation—including a favourable Delhi High Court ruling in August 2024—the Supreme Court resolved the matter in January 2026.
The Supreme Court applied the GAAR, concluding that the Mauritius structure was primarily tax-driven, rather than commercially grounded. In doing so, it elevated substance over legal form and signalled a stricter stance against treaty shopping. Although the decision spans more than 100 pages, its practical impact can be distilled into three distinct shifts.
TRCs no longer provide complete protection
Historically, a TRC issued by a foreign tax authority was treated as near-conclusive evidence of treaty benefit entitlement. The Supreme Court clarified that while a TRC is relevant evidence, it is not determinative. Where the authorities have reason to question commercial substance, they may examine the underlying facts. The court also noted that earlier administrative guidance elevating the status of TRCs must be interpreted in light of subsequent legislative and treaty developments, including the Finance Act 2013 and revisions to the India-Mauritius tax treaty.
Pre-2017 investments did not escape the GAAR
Rule 10U(1)(d) of the Indian Income-tax Rules, 1962 grandfathered investments made before 1 April 2017 from the application of the GAAR. Tiger Global's investments (2011-2015) fell squarely within this window. However, the Supreme Court held that Rule 10U(2), which applied the GAAR to any arrangement generating a tax benefit on or after 1 April 2017 regardless of when the underlying investment was made, operated “without prejudice” to the grandfathering clause. As a result, the protection against the GAAR was effectively neutralised.
Commercial substance is paramount
The Supreme Court ruling reinforces that treaty benefits depend on genuine commercial substance. In evaluating the facts, the court considered factors such as:
- Location of key decision-making functions;
- Authority exercised by personnel in the jurisdiction of incorporation; and
- Nature and extent of economic activity.
The Government Steps In and What It Fixed
The Supreme Court’s interpretation of the GAAR provisions had raised concerns about the potential reach of the GAAR to legacy investments, particularly where sales or transfers took place after 1 April 2017. In response to extensive representations from taxpayers and advisors, the CBDT issued two notifications—Notification 54/2026 amending Rule 10U of the Income Tax Rules 1962 and Notification 55/2026 making a parallel amendment to Rule 128 of the Income Tax Rules 2026, which governs the new Income-tax Act 2025 (effective 1 April 2026). Both notifications clarify the intended scope of the GAAR to pre-1 April 2107 investments. The key intervention was surgical: the “without prejudice” language in sub-rule (2)—the very phrase relied on by the Supreme Court—was deleted. In its place, the rules now expressly exclude income arising from the transfer of investments before 1 April 2017 from the GAAR's ambit.The Explanatory Memorandum to Notification 54 reinforces this policy intent, stating that the GAAR is not intended to apply where gains arise from the transfer of pre-1 April 2017 investments.
What the Amendment May Not Change
One reading of the amendment to the GAAR rules is that it creates a clear, explicit carve-out: gains from the transfer of investments made before 1 April 2017 fall outside the scope of the GAAR and, in the absence of the GAAR, a TRC could be viewed as conclusive for entitlement to treaty benefits.However, a more cautious interpretation is equally plausible. The amendments are narrowly targeted at the GAAR and do not disturb the broader legal framework governing treaty entitlement or anti-avoidance. The principles articulated by the Supreme Court therefore continue to have relevance. In particular:
- The conclusiveness of a TRC for treaty entitlement remains open to interpretation.
- The tax authorities may still examine commercial substance where warranted.
- Judicial anti-avoidance principles continue to operate alongside statutory provisions.
- The principal purpose test under the Multilateral Instrument applies independent of the GAAR.
BDO Perspective
For foreign private equity and venture capital investors holding pre-1 April 2017 investments, the amendment provides meaningful comfort: the GAAR should not apply to gains arising on exit. That said, this does not eliminate scrutiny on questions of commercial substance, tax treaty entitlement or judicial anti- avoidance. Future judicial or administrative developments may further refine the landscape.For investments made on or after 1 April 2017, anti-avoidance rules apply from inception. Each element of the structure—including jurisdictional choice, holding arrangements and exit strategy—must withstand scrutiny based on demonstrable genuine commercial purpose and economic substance.
Documentation remains critical. Contemporaneous records of investment rationale, governance processes, decision-making authority, and local operational or economic substance will be central to supporting treaty claims and managing dispute risk.
Mihir Gandhi
Piyush Kalanoria
BDO in India