The Supreme Court’s verdict directing Tiger Global to pay capital gains tax on its 2018 sale of Flipkart shares is unlikely to accelerate the selloff by foreign portfolio investors (FPIs). However, legal and tax experts say the ruling sharpens scrutiny around treaty benefits and could influence how offshore investors structure future India bets.
Market participants broadly view the judgment as fact-specific, centered on the interpretation of grandfathering provisions under the India–Mauritius tax treaty and the application of the General Anti-Avoidance Rule (GAAR). As a result, the ruling is not expected to lead to panic-driven FPI selling or abrupt changes in portfolio allocations.
FPIs have pulled out nearly $2 billion this month. However, it is on account of factors such as US trade deal uncertainty, relatively expensive valuations and lack of AI-theme stocks.
“The Tiger Global ruling is unlikely to trigger any immediate or large-scale FPI selloff,” said Aditya Bhattacharya, partner at King Stubb & Kasiva, Advocates and Attorneys. “FPIs generally price in tax risks over time, and this decision is confined largely to grandfathering and substance.”
Experts said the verdict clarifies that grandfathering benefits cannot be claimed mechanically, and that investors must demonstrate commercial substance and eligibility. Legal advisors expect FPIs to respond not by exiting India, but by reassessing structures.
“FPIs are likely to strengthen economic substance, revisit treaty positions, and reassess holding structures to ensure compliance with GAAR, principal purpose test (PPT) and limitation of benefits (LOB) requirements,” Bhattacharya said.
Arijit Ghosh, tax lawyer at Trilegal, said that the wide interpretation by the SC of the anti-avoidance rules could embolden tax authorities to challenge treaty claims more frequently, including for FPIs claiming benefits.
Ghosh added that FPIs claiming benefits under the treaty could now face heightened challenges on grounds of adequacy of commercial substance, making the recent un-notified limitation of benefits clause in the Mauritius treaty applicable in spirit.
However, several tax experts are of the view that the ruling will not just apply to Mauritius structures, but to other cases also where the income is not taxable in the country of residence—either due to losses, exemptions, or restricted scope of taxation.
“Tax treaties or international tax jurisprudence do not prescribe the test of actual levy of tax for availing treaty benefits. Further, the SC has awakened a beast called Judicial Anti Avoidance Rules (JAAR), which had very limited application so far but now will create a lot of uncertainty as there is limited formal guidance on how and when it can be unleashed and what will be the consequences,” said Nemin Shah, director EQX Business Consultancy.
The SC has clarified that in certain arrangements even if GAAR does not apply, the provisions under JAAR could still apply. According to experts, JAAR looks beyond the agreement or the arrangement, but focuses on ‘substance’ or the underlying realities of the agreement to determine if the transaction is for anti-avoidance.
“JAAR can apply to domestic tax transactions as well as cross border transactions - and without materiality and procedural safeguards, there is considerable uncertainty with respect to its scope and application,” explained Shah.
The ruling comes amid an existing shift in FPI routing trends. Experts said Mauritius-linked FPI flows have been moderating over the past few years, with investors diversifying into jurisdictions offering stronger substance and regulatory certainty.
At the end of December, the island-nation was the fifth biggest jurisdiction for channeling FPI flows into India. The assets under custody from Mauritius stood at ₹3 trillion, down from ₹4.3 trillion at the end of 2020, when it was the second-biggest jurisdiction after the US.
In 2023, Singapore overtook Mauritius as the second-most preferred geography for FPIs. In 2024 and 2025, it slipped below Luxembourg and Ireland, respectively. Experts said Singapore could continue to gain more prominence. It is already a preferred destination for conducting futures and option (F&O) trades given the popularity of SGX-Gift City connect for trades in Gift Nifty.
Experts said under the current environment, GIFT City offers a safer harbour.
Notably, FPIs operating through GIFT City are seen as largely insulated from the impact of the ruling.
Vishal Lohia, associate partner at Dhruva Advisors, said the judgment does not directly affect IFSC-based structures, which benefit from domestic tax exemptions and do not rely on overseas treaties vulnerable to GAAR overrides.
“Post-ruling, interest in GIFT City structures may rise as a safer alternative,” Lohia said, adding that commercial substance will still be key under the GIFT City fund management framework.
 "Tiger Global ruling unlikely to spook FPIs, but raises bar on tax substance")
