COURTKUTCHERY SPECIAL ON SC TIGER GLOBAL’s JUDGEMENT LIKELY IMPACT ON FOREIGN INVESTORS
Supreme Court’s Tiger Global Ruling Shakes Foreign Funds in India’s F&O Market
TRC Alone Not Enough – Court Demands Commercial Substance
Why Over 500 Foreign Investors Face Tax Scrutiny
By Our Legal Reporter
New Delhi: January 17, 2026:
The Supreme Court of India has delivered a landmark judgment in the Tiger Global–Flipkart case, ruling that foreign investors cannot rely solely on a Tax Residency Certificate (TRC) to claim tax exemptions under the India–Mauritius Double Taxation Avoidance Agreement (DTAA).
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This ruling, delivered in January 2026, has sent shockwaves across India’s financial markets, particularly the Futures and Options (F&O) derivatives segment, where foreign portfolio investors (FPIs) contribute nearly 15% of total trading volumes.
Tax experts warn that the judgment could affect over 500 foreign funds, many of which have historically routed investments through Mauritius and Singapore to avoid capital gains tax.
TRC Alone Not Enough – Court Demands Commercial Substance
The crux of the Supreme Court’s ruling is that treaty benefits cannot be granted merely based on a TRC.
- Tiger Global’s case: The US-based private equity giant sold its stake in Flipkart to Walmart in 2018, earning $1.6 billion. It claimed exemption from capital gains tax under the India–Mauritius DTAA.
- Court’s finding: The SC held that Tiger Global’s Mauritius entities were shell companies with no real commercial substance, created only to avoid taxes.
- Key principle: Treaty benefits under Sections 90 and 90A of the Income Tax Act are available only to genuine commercial arrangements, not to structures designed primarily for tax avoidance.
This means that foreign investors must now prove economic substance in their Mauritius or Singapore entities—such as real offices, employees, and business operations—rather than just paper incorporation.
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Why Over 500 Foreign Investors Face Tax Scrutiny
The ruling has far-reaching implications for India’s financial markets:
- F&O market exposure: Over 500 foreign funds actively trade in India’s derivatives market using Mauritius and Singapore structures. These funds assumed their gains were tax-free under DTAA.
- No grandfathering: The SC clarified that pre-2017 investments routed through Mauritius are not grandfathered, meaning they can still be scrutinized.
- Exit strategies at risk: Many funds planning exits from Indian startups or listed companies may now face unexpected tax liabilities.
- Compliance burden: FPIs must demonstrate commercial substance in their offshore structures, increasing compliance costs.
- Market uncertainty: Experts warn that the ruling could reduce foreign participation in India’s derivatives market, impacting liquidity and trading volumes.
Wider Context – India’s Tax Treaties and Anti-Avoidance Rules
India has long battled treaty shopping, where investors use jurisdictions like Mauritius or Singapore to avoid taxes.
- 2016 amendment: India renegotiated its DTAA with Mauritius, introducing capital gains tax on shares acquired after April 1, 2017.
- General Anti-Avoidance Rule (GAAR): Effective from 2017, GAAR empowers tax authorities to deny treaty benefits if arrangements lack commercial substance.
- Supreme Court’s ruling: Reinforces GAAR principles, making it clear that form cannot override substance.
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This judgment strengthens India’s stance against tax avoidance and aligns with global efforts to curb base erosion and profit shifting (BEPS).
Implications for Foreign Investors
- For FPIs: Must restructure investment vehicles to show genuine substance.
- For private equity funds: Exit strategies may face higher tax costs.
- For startups: Foreign funding could slow down if investors fear tax uncertainty.
- For regulators: Greater scrutiny of offshore structures, especially in Mauritius and Singapore.
- For markets: Possible decline in F&O volumes, affecting liquidity.
Conclusion
The Supreme Court’s ruling in the Tiger Global case marks a turning point in India’s tax jurisprudence. By holding that TRC alone is insufficient and demanding commercial substance, the Court has closed the door on treaty shopping.
With over 500 foreign funds now facing scrutiny, the judgment will reshape how global investors approach India’s markets. While it strengthens India’s fight against tax avoidance, it also raises concerns about foreign investment flows, particularly in the derivatives segment.
This ruling underscores the principle that justice in taxation lies not in form but in substance, setting a precedent that will influence India’s financial ecosystem for years to come.
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