New Delhi: A landmark ruling by India’s Supreme Court on overseas investments routed through Mauritius has unsettled global investors and raised fresh concerns about tax certainty in one of the world’s fastest growing major economies.
The court ruled that capital gains made by US based Tiger Global from the sale of its Flipkart stake in 2018 are taxable in India, even though the investment was structured through Mauritius. The judges said the Mauritius based entities used in the deal lacked real commercial substance and were set up mainly to avoid paying taxes in India.
For decades, many foreign investors used the Mauritius route to invest in Indian companies because the India Mauritius tax treaty allowed them to avoid capital gains tax. Although India amended the treaty in 2017 to tax new investments, older deals were protected under a grandfathering clause. The latest ruling effectively weakens that protection by allowing tax authorities to look beyond paperwork and examine the real purpose of investment structures.
Legal experts say the judgment reinforces the principle of substance over form, meaning treaty benefits can be denied if an investment vehicle exists only on paper. The court also strengthened the use of India’s anti avoidance rules, giving tax officials wider powers to challenge similar arrangements.
The decision could have far reaching implications for private equity and hedge funds that made large investments in India before 2017 using Mauritius or other low tax jurisdictions. Analysts warn that past deals once considered safe may now face scrutiny, leading to higher tax bills and prolonged legal disputes.
Investor groups have expressed concern that the ruling may add to uncertainty at a time when India is seeking to attract long term foreign capital. Some fund managers say the judgment could influence how future investments and exits are structured, with greater emphasis on local substance and operational presence.
The Indian government maintains that the ruling aligns with global efforts to curb treaty abuse and aggressive tax planning. Officials argue that genuine investors with real business operations should not be affected and that the decision supports fair taxation without targeting honest investment.
Mauritius was once India’s largest source of foreign direct investment, largely due to tax benefits under the treaty. While its importance has declined since the 2017 changes, the latest ruling signals a tougher approach that could reshape how global investors view tax risks in India.
Market watchers say the long term impact will depend on how consistently the ruling is applied and whether it leads to more predictable tax enforcement. For now, the judgment has sent a clear message that India is prepared to challenge legacy investment structures that it believes were designed mainly to reduce taxes.