The Central Board of Direct Taxes (CBDT) has recently issued Notifications 54 and 55 of 2026, amending Rule 10U of the Income-tax Rules, 1962 and Rule 128 of the Income-tax Rules, 2026, which excludes the application of General Anti-Avoidance Rules (GAAR) on income arising from the transfer of investments made before April 1, 2017, irrespective of the date of transfer.
On January 15, 2026, in the Tiger Global-Flipkart case, the Supreme Court held that GAAR could be invoked to deny India-Mauritius DTAA benefits even for pre-2017 investments that lacked genuine commercial substance.
The Court held that Tiger Global‘s Mauritius entities were “conduits” lacking genuine commercial substance and that GAAR could override treaty grandfathering for a post-2017 gain, even when the underlying investment was pre-2017.
Over the 23 years leading up to 2023, Mauritius alone channelled USD 171 billion in foreign investment into India, a quarter of all foreign inflows and Singapore and Mauritius together accounted for roughly 46 percent of India’s FDI inflows in 2024-25.
Against the backdrop of the Tiger Global judgement, the CBDT‘s March 31 notification aims at stabilising investor confidence and it comes amid a market where PE/VC dealflow reached USD 34 billion in 2025, a 54 percent increase over 2024’s USD 22 billion, according to data analysed by Equirus Capital.
The amendments provide that GAAR shall not apply to any income arising from the transfer of investments made prior to April 1, 2017, even if the underlying arrangement is not independently grandfathered. The amendment to the 1962 Rules takes effect from March 31, 2026, while amendments to the 2026 Rules apply from April 1, 2026.
PE/VC Exit Timelines and Valuations
PE/VC exits in India plunged to USD 405 million in February 2026, marking a 93 percent year-on-year decline from USD 6 billion across 17 exits in February 2025, according to the EY-IVCA Monthly PE/VC Roundup.From a deal-making perspective, the notification meaningfully reduces the tax-risk of legacy portfolios. Given that investments made post April 1, 2017 remain GAAR- vulnerable, this notification aims at keeping a check at anti-abuse concerns while protecting legacy investors from uncertainty.
Kunal Savani, partner at Cyril Amarchand Mangaldas, notes that “this certainty should help streamline exit timelines for legacy investments, particularly by reducing the time previously spent negotiating tax risk allocation, indemnities, or advance rulings to address GAAR concerns.”
Alay Razvi, managing partner at Accord Juris adds that the amendment “eliminates post-Tiger notice burdens requiring substance documentation from Mauritius/Singapore vehicles, minimising valuation discounts and litigation,” with sovereign and global funds set to benefit from assured grandfathering, potentially fostering M&A revival.
Substance-Over-Form: Not Fully Resolved
Despite the clarity, the notifications do not grant blanket immunity from treaty-claim scrutiny. As Savani points out, the Supreme Court in Tiger Global recognised that treaty claims can still be tested via judicial anti-avoidance rules (JAAR) entrenched in Indian jurisprudence, even in the absence of GAAR. Accordingly, “treaty claims may still be questioned or denied where they fail to satisfy the ‘substance over form’ doctrine, thereby diluting the relief and certainty provided through these amendments.”
“The protection conferred by these amendments is confined to income arising from the transfer of legacy investments. Treaty claims in respect of other income streams (such as dividends, royalties, or fees for technical services) remain open to scrutiny,” added Savani.
Ritika Nayyar, partner at Singhania & Co., nonetheless welcomed the step, confirming that it “brings significant relief to the industry by ensuring that income arising on exit from such legacy investments is not subjected to fresh anti-avoidance scrutiny, while continuing to preserve their intended grandfathering benefits.”
Impact on Pending Disputes
The notification’s express prospective operation leaves an unaddressed gap pertaining to disputes already pending before courts.
Savani observes that while prospective transactions and those where GAAR has not yet been invoked will “derive meaningful benefit and certainty,” the applicability of these amendments to “pending disputes or ongoing scrutiny remains unclear, which may give rise to a fresh round of tax litigation.” Had the government’s intent been to fully resolve the post-Tiger Global ambiguity, he argues, “it would have been appropriate for such amendments to be expressly made retrospective.”
For Tiger Global itself, with its 2018 exit already assessed and INR 967 crore withheld, the prospective design likely bars any direct relief unless courts interpret the amendment as clarificatory of the original 2012 Finance Act intent.
“The clarification qualifies the Supreme Court’s Tiger Global ruling. Tiger Global may seek review or curative petition, contending the amendment is clarificatory of the original 2012 Finance Act grandfathering intent for pre-2017 investments. However, its prospective operation from April 1, 2026, likely bars relief for the 2018 exit already assessed (INR 967 crore withheld), as completed proceedings remain unaffected unless judicially reread as retrospective,” said Razvi
The CBDT’s notification is widely read as a calibrated, investor-friendly course correction, one that seeks to preserve India’s reputation as a predictable destination for long-cycle capital, even as it keeps GAAR firmly in place for post-2017 arrangements.
“The amendment shields PE/VC funds’ pre-2017 investments from GAAR on all future exits, enabling stalled IPOs, secondary transactions, and divestments without tax treaty denial risks,” concluded Razvi. “Sovereign and global funds benefit from assured grandfathering, fostering M&A revival, while post-April 1, 2017 investments stay GAAR-vulnerable. This targeted relief balances anti-abuse with legacy investor safeguards, promoting capital flow stability.”
