India’s Supreme Court has ruled that Tiger Global’s $1.6 billion capital gain from selling its stake in Flipkart to Walmart in 2018 is taxable in India, rejecting the argument that Mauritius-based holding companies should be exempt under the India-Mauritius Double Taxation Avoidance Agreement (DTAA). The court held that the structure was an “impermissible tax-avoidance arrangement”, emphasising that a Tax Residency Certificate (TRC) alone is not enough to secure treaty benefits when the entity lacks real commercial substance.
This verdict is significant for global investors and venture capital (VC)/private equity (PE) funds because it signals a tougher stance by Indian tax authorities on offshore investment structures that have historically been used to minimise taxes on exits. For years, foreign capital into Indian startups often flowed through jurisdictions such as Mauritius, Singapore and the Cayman Islands to leverage treaty-based tax neutrality on capital gains; many of these structures relied on TRCs to claim treaty benefits. The Supreme Court’s focus on economic substance over mere documentation means that such arrangements will face much closer scrutiny going forward.
For the Indian startup ecosystem, this ruling could reshape how exits are planned and executed. Early large liquidity events such as Flipkart’s exit have set benchmarks, but the court’s judgment may prompt VCs and PE firms to reassess deal structures, exit timing and tax planning, especially where treaty benefits were assumed to be automatic. This is likely to affect investor confidence in cross-border structuring and could lead to higher tax costs or complexity in future transactions, including IPOs, secondary sales and mergers & acquisitions that involve foreign investors.
Analysts also note that the decision comes at a time when startup funding and exit activity have already been under pressure, with global capital becoming more selective and focused on profitability and fundamentals rather than headline growth alone. While the ruling reinforces India’s tax sovereignty and alignment with international anti-abuse standards, it introduces greater due diligence requirements and potential litigation or re-assessment risk for investors relying on offshore holding companies.
In essence, while the SC order does not shut the door on foreign investment in Indian startups, it marks a shift toward substance-based tax treatment and away from mechanical treaty claims, meaning global funds must now navigate a more stringent tax and structural landscape if they wish to realise returns efficiently.
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