Tiger Global Flipkart exit: What the Supreme Court ruling means for cross-border tax rules

The Supreme Court’s decision to tax Tiger Global’s 2018 exit from Flipkart has emerged as a landmark moment for India’s cross-border tax jurisprudence, with wide-ranging implications for foreign investors and the startup ecosystem. The ruling held that Tiger Global’s $1.6-billion stake sale to Walmart is subject to capital gains tax in India, rejecting the investor’s claim for exemption under the India–Mauritius Double Taxation Avoidance Agreement (DTAA).

The verdict overturned a favourable Delhi High Court ruling and upholds a tax demand estimated at nearly ₹14,500 crore. While the detailed judgment is awaited, the outcome has already intensified debate around treaty structures, beneficial ownership and economic substance in offshore investment routes.

What the ruling means

Sujit Bangar, Founder of TaxBuddy.com, said the Supreme Court ruling represents a clear shift in how India’s tax system views cross-border investment structures, particularly those relying on treaty benefits.

According to Bangar, the court has ruled that Tiger Global’s Flipkart stake sale is taxable in India and has set aside the Delhi High Court’s earlier decision that had favoured the investor. He noted that while the full judgment text is still awaited, the key outcomes are evident from court reporting.

Bangar highlighted that the transaction involved Tiger Global selling around 17% stake in Flipkart to Walmart in 2018, with the deal value reported at about $1.6 billion. Indian tax authorities treated this as taxable capital gains arising in India, a view that has now been upheld by the Supreme Court.

On why the Mauritius DTAA did not protect Tiger Global, Bangar explained that while the investor relied on treaty protection based on Mauritius residency and “grandfathering” provisions, the tax department argued that the structure amounted to treaty abuse through conduit entities. The Supreme Court accepted this argument and treated the arrangement as impermissible tax avoidance.

A key phrase used by the court—“impermissible tax avoidance arrangement”—is central to the ruling’s significance, Bangar said. “That language matters because it shifts the debate from form to substance,” he explained, adding that the focus has moved away from paper residency to identifying who actually controlled and benefited from the transaction.

Bangar pointed out that one major takeaway for investors is that a Tax Residency Certificate is no longer a complete shield. Treaty benefits, he said, can now be tested against anti-avoidance principles, and even structures claiming grandfathering protection may face scrutiny if they lack commercial substance.

He also flagged the indirect transfer angle in the case. The structure followed a common private equity route where shares of an overseas holding entity—such as a Singapore-based company—are sold, even though the underlying value is derived from India. According to Bangar, this significantly raises the bar for offshore exits linked to Indian assets.

Calling the ruling a major precedent, Bangar said cross-border exits have traditionally relied heavily on DTAA language. If courts consistently prioritise economic substance, many legacy investment structures could be re-evaluated. He expects increased litigation around beneficial ownership, control and commercial rationale in future cases.

Case background

Tiger Global had been in a prolonged legal dispute with Indian tax authorities over its 2018 stake sale in Flipkart through Mauritius-based entities. The investor argued that capital gains were exempt under the India–Mauritius DTAA, citing grandfathering provisions for investments made before April 1, 2017.

Tax authorities rejected this claim, arguing that the Mauritius entities lacked independent decision-making power and were part of a larger web of entities ultimately controlled from the US. The Authority for Advance Rulings denied treaty benefits in 2020, a decision later overturned by the Delhi High Court in 2024, before now being reinstated by the Supreme Court.

The ruling is expected to reshape how foreign investors structure exits from Indian startups and factor tax risk into valuations going forward.

Impact of the verdict

Tax experts are describing the Supreme Court’s ruling as a landmark development, as it empowers Indian tax authorities to deny bilateral treaty benefits to foreign entities that use layered structures or shell companies to avoid paying tax on India-linked transactions.

According to a Moneycontrol report, the judgment is expected to help the tax department recover about Rs 1,000 crore from the Mauritius-based entity involved in the case. More importantly, it is likely to trigger scrutiny of other similar structures, which could potentially unlock additional tax revenue running into more than Rs 20,000 crore over time.

Hemen Asher, Partner – Direct Tax at Bhuta Shah & Co. LLP, said the Supreme Court undertook a comprehensive examination of the India–Mauritius DTAA, relevant CBDT circulars on Tax Residency Certificates (TRCs), and its earlier landmark rulings in Azadi Bachao Andolan and Vodafone. The court also considered the General Anti-Avoidance Rule (GAAR), the recommendations of the Shome Committee, and amendments made to the India–Mauritius DTAA in 2016.

Asher noted that the court set aside the High Court judgment that had favoured the taxpayer and appeared to apply GAAR principles in reaching its conclusion. “It will be important to study the detailed judgment to understand how GAAR was effectively applied, especially since the statutory procedure for invoking GAAR is clearly laid out under the Income-tax Act,” he said.

He added that the ruling represents a significant setback for foreign investors using FDI and FPI routes, as long-standing tax certainty around TRCs has weakened. Investors may now need to factor capital gains tax costs and higher litigation risk into their India investment strategies.