Govt Exempts Pre-April 2017 Investments From Anti-Tax Avoidance Laws

After years of back and forth, the Central Board of Direct Taxes (CBDT) has now clarified that anti-tax avoidance laws will not be applicable to investments made before April 2017.

In a gazette note dated March 31, the finance ministry said that gains from investments ⁠made before April 2017 would not be subject to ​any scrutiny under the country’s stricter anti-tax avoidance ​rules, which seek to curb aggressive tax planning and evasion. 

Clubbed under the Income Tax (Amendment) Rules, 2026, the new norms came into effect from April 1.

“The provisions of Chapter XI (general anti-avoidance rules) shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st April, 2017, except for that income which accrues or arises to, or deemed to accrue or arise to, or is received or deemed to be received by, any person from transfer of such investments which were made before the 1st April, 2017 by such person (s),” read the new amendments.

The new rules are expected to offer a major reprieve for global venture capital (VC) and private equity (PE) firms and allay fears of retrospective taxation in the country. Additionally, the new norms will allow these investors to seek tax benefits from pre-2017 transactions.

This comes barely four months after the Supreme Court (SC) ruled against PE giant Tiger Global in a tax liability case related to the sale of its stake in Flipkart in 2018. In January this year, the SC ruled that the investment firm was liable for paying taxes on capital gains, emanating from the sale of shares worth $1.6 Bn to Walmart.

At the time, the judgement was seen as a reversal of the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

At the heart of the issue was Tiger Global’s Flipkart investment, which was undertaken via the former’s Mauritius-based entity Tiger Global International III Holdings. When Walmart acquired 77% stake in the homegrown ecommerce major in 2018, the investor argued that it was not liable to pay capital gains tax on its returns from the stake sale due to the DTAA signed between India and Mauritius. 

However, Indian tax authorities rejected this argument, saying the Mauritius-based entities were “fronts” for investments to avoid paying taxes. Tax officials also argued that the ultimate beneficiary of these investments was Tiger Global’s US-based parent company.

Moreover, India had tweaked the DTAA treaty with Mauritius in 2016, declaring all foreign investments made through Mauritius after April 2017 as tax deductible. To this, Tiger Global claimed that the investment was made prior to the cut-off date, deemed it as exempted.

But, the Authority for Advance Rulings (AAR) denied the DTAA benefits to Tiger Global in 2020, noting that the investment appeared to have been routed through Mauritius solely for tax-saving purposes. 

However, this decision was overturned by the Delhi High Court (HC) in 2024. But the SC stayed the HC ruling last year and subsequently set aside the order earlier this year. With the latest amendments, Tiger Global appears to be off the hook for now. 

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