India’s Central Board of Direct Taxes (“CBDT”) has recently clarified that gains arising from the transfer of investments made prior to April 1, 2017 will not be subject to GAAR, irrespective of when such transfers take place. This clarification comes in the backdrop of the Supreme Court’s ruling in the Tiger Global case (January 2026), which had raised concerns that GAAR could override treaty benefits even for grandfathered investments. The CBDT has now reaffirmed the original intent of the law by ring-fencing such investments from GAAR exposure.
This is in addition to the CBDT’s Circular No 1 of 2025, wherein it had clarified that grandfathering benefits provided under the Mauritius, Singapore and Cyprus DTAA on investments made prior to April 1, 2017 shall not be subject to the Principal Purpose Test, if any, in the respective DTAAs. Thus, investments made in India by tax residents of Mauritius, Singapore or Cyprus prior to April 1, 2017 shall not be subject to GAAR and PPT scrutiny.
Key implications
- No GAAR exposure on transfer gains, even if exit occurs post April 1, 2017
- Any benefit (other than on transfer) arising post April 1, 2017 will be subject to GAAR even where the investment was made prior to April 1, 2017.
That said, taxpayers should continue to ensure robust commercial substance and evaluate exposure under other anti-abuse provisions (including treaty abuse and substance tests), as the CBDT circulars provide immunity only from GAAR and PPT scrutiny.
Published by Majmudar & Partners, a law firm.
Disclaimer: This post is intended for general legal awareness only and does not constitute legal, tax, or professional advice