After Tiger Global Ruling, Income Tax Dept Issues Notices to Overseas VC & PE Funds

In the wake of the Supreme Court’s ruling denying tax benefits to US-based investment firm Tiger Global, the Income Tax Department has reportedly issued notices to at least seven overseas venture capital (VC) and private equity (PE) funds. The move signals heightened scrutiny of foreign investment structures routed through Mauritius and Singapore, jurisdictions traditionally used by global investors for India-focused investments.

Tax officials from Mumbai and Bengaluru have sought extensive documentation to examine the “substance” of these offshore entities. The inquiries are focused on investors who have sold investments, directly or indirectly, and claimed exemption from Indian capital gains tax under the India-Mauritius and India-Singapore tax treaties.

The scrutiny assumes urgency as several assessment proceedings for Tax Year 2023-24 are approaching the limitation deadline of March 31, 2026. Authorities appear keen to complete these assessments within the statutory time frame.

What the Tax Department Is Examining:

The notices reportedly seek granular information, including:

• Sources of funds and capital infusion
• Identity of bank account signatories
• Roles and responsibilities of directors
• Details of ultimate beneficial ownership (UBO)
• Operational expenses and local set-up in Mauritius or Singapore
• Details of buyers of shares and whether they are related parties

By gathering such information, the department aims to determine whether these offshore entities have genuine commercial substance or merely function as treaty-shopping vehicles.

GAAR Angle May Come Into Play:
Experts suggest that the tax authorities may rely on principles emerging from the Tiger Global judgment to challenge earlier accepted fund structures. There is also speculation that cases could be escalated under the General Anti-Avoidance Rule (GAAR), which is designed to curb aggressive tax planning and impermissible avoidance arrangements.

Parul Jain, Head of International Tax at Nishith Desai Associates said, “The nature and breadth of these inquiries indicates a clear intent to apply the principles emerging from the Tiger Global ruling across a wide spectrum of earlier acceptable Mauritius holding and fund structures,” said .

She added that it remains to be seen whether judicial anti-avoidance principles will be invoked alongside possible escalation of cases to the GAAR panel. The General Anti-Avoidance Rule (GAAR) was introduced to deter aggressive tax planning arrangements lacking commercial substance.

For years, Mauritius and Singapore-based fund structures enjoyed treaty protection for capital gains arising from Indian investments, subject to grandfathering and limitation of benefits clauses. The recent judicial developments, however, appear to have made the tax department to reassess the commercial value of such arrangements more deeply.