Foreign investors in India are growing uneasy after a recent Indian Supreme Court strengthened the government’s power in tax disputes. Lawyers and advisers say private equity firms are rechecking old deals and questioning how safe past investments really are.
The ruling focuses on a major 2018 transaction involving US investment firm Tiger Global and Indian ecommerce company Flipkart. The court’s decision could change how foreign investors exit their Indian holdings in the future.
What the Supreme Court Decided
On 15 January, India’s Supreme Court ruled that Tiger Global must pay tax in India on profits made from selling its Flipkart stake to Walmart in 2018. This decision overturned a 2024 Delhi High Court ruling that had allowed Tiger Global to claim tax relief under the India Mauritius tax treaty.
The judges said that having tax residency certificates is not enough. Authorities can now deny treaty benefits if offshore entities have no real business activity and exist mainly to avoid tax.
One judge stated that taxing income generated within a country is a basic sovereign right. Diluting this right, he said, could harm long term national interests.
Why the Flipkart Deal Matters
Walmart bought a majority stake in Flipkart in one of the largest ecommerce deals of its time. Tiger Global exited fully, selling a 17 percent stake for around 1.6 billion dollars.
Tiger Global argued that its gains were protected because the investment was routed through Mauritius. Its investments were made before April 2017, when India changed its tax rules.
Indian tax authorities disagreed. They argued that the Mauritius entities were only conduits with no genuine business purpose. The Supreme Court accepted this view.
Impact on Foreign Investors and Funds
The ruling has worried foreign investors, especially those using offshore structures in Mauritius, Singapore, or the Netherlands. Legal experts warn that tax authorities may now reopen old transactions that investors believed were settled.
Private equity advisers say deal valuations, exit plans, and paperwork will now face deeper scrutiny. This increases compliance costs and slows transactions.
Some investors fear that promises made by the government to protect pre 2017 investments no longer hold the same weight.
A Shift in India’s Tax Approach
India has attracted large foreign inflows by signing tax treaties to avoid double taxation. Mauritius alone accounted for nearly one quarter of India’s foreign direct investment between 2000 and March 2025.
However, concerns over treaty misuse grew after global data leaks exposed tax avoidance practices. India tightened its tax laws in 2016 and later amended treaties to benefit only firms with real operations.
The latest ruling gives tax authorities stronger backing to challenge artificial offshore setups.
