Ajay Rotti, Founder and CEO of Tax Compass, said the Supreme Court's verdict in the Tiger Global–Flipkart case fundamentally changes how tax treaty benefits are assessed in India, particularly the reliance on Tax Residency Certificates (TRCs).

At the heart of the issue, Rotti said, is whether a TRC issued by a foreign country is sufficient proof for claiming treaty benefits such as lower or nil tax rates. India has tax treaties with several countries that offer beneficial rates — capital gains being taxable only in Mauritius under the earlier treaty, lower dividend tax rates under Singapore, and similar provisions with the US and others.

Until now, foreign investors largely relied on TRCs to claim these benefits. However, the Supreme Court has ruled that a TRC alone is not conclusive proof of eligibility. Even if a TRC is produced, Indian tax authorities can examine whether the investor has real substance and genuine residency in that country. In the Tiger Global case, the court held that the investor lacked sufficient substance, and therefore was not entitled to the 0% capital gains tax rate under the Mauritius treaty, overturning the earlier Delhi High Court judgment.

Rotti said the ruling makes it clear that a TRC cannot be used as a shield for tax exemption, and treaty benefits can now be reviewed on a case-by-case basis by the income tax department.

Impact on current foreign investment flows limited

According to Rotti, the verdict is unlikely to impact current FDI or FII flows, or trades and exits happening today. He explained that India had already renegotiated key treaties, including Mauritius and Singapore. Under the revised Mauritius treaty, capital gains on investments made after April 1, 2017 are taxable in India, regardless of whether a TRC is available.

As a result, investments made over the last five to six years, and exits happening now, were already taxable, and the Supreme Court ruling does not change their tax treatment. The ruling primarily affects legacy investments and exits made before 2017, where the grandfathered 0% capital gains tax benefit was available.

Legacy cases may face renewed scrutiny

Rotti said the verdict could revive scrutiny in older transactions and ongoing litigation, particularly those linked to the Flipkart exit, where multiple foreign investors, including Tiger Global and others such as eBay, had exited. Several of these cases are at different stages of litigation and had relied on the earlier favourable Delhi High Court ruling.

He added that past cases where tribunals treated TRCs as conclusive proof could now be reopened. This includes certain transactions where foreign entities invested in Indian assets, exited, and claimed tax exemption solely on the basis of a TRC.

Broader implications beyond Mauritius

Rotti cautioned that the ruling's implications may extend beyond the Mauritius capital gains issue. TRCs are used across geographies to claim treaty benefits, including lower dividend tax rates — for instance, 10% under Singapore, 5% under the Netherlands, and 15% under the US.

If Indian tax authorities begin to scrutinise substance instead of accepting TRCs at face value, the impact could be much wider, affecting not just capital gains but also dividend taxation and other treaty benefits across countries. The Supreme Court verdict, Rotti said, signals a shift toward greater substance-based scrutiny, which could unsettle past cases but does not materially alter the tax position of post-2017 investments or current foreign capital flows into India.

Watch LIVE TV, Get Stock Market Updates, Top Business, IPO and Latest News on NDTV Profit.