Fwd: How One Tax Ruling Will Cost India More Than It Collects
Dr Sundar
From: Sharp by Swarajya <sharpbyswar...@substack.com>
Date: Wed, Jan 21, 2026 at 8:11 PM
Subject: How One Tax Ruling Will Cost India More Than It Collects
To: <drs...@gmail.com>
How One Tax Ruling Will Cost India More Than It CollectsWhen you tax capital at the border, capital finds other borders.
The recent Tiger Global related Supreme Court ruling will collect ₹14,500 crore for the exchequer, and the tax department is celebrating a landmark victory against treaty shopping. What nobody in Delhi seems to be calculating is the far larger number—the investment that won’t come to India because of what this judgment signals to every fund manager sitting in New York, London, and Singapore, quietly recalculating whether India is worth the risk. On January 15, the Supreme Court ruled that Tiger Global must pay tax on its $1.6 billion gain from the Flipkart-Walmart deal, despite routing the investment through Mauritius with a valid Tax Residency Certificate. The court found that the Mauritius entities lacked commercial substance, that real control resided with Charles Coleman in the United States, and—most significantly—that the General Anti-Avoidance Rules can be applied to any arrangement yielding tax benefits after April 2017, regardless of when the original investment was made. Tiger Global invested between 2011 and 2015. GAAR came into effect in 2017. The grandfathering protection that investors relied upon turned out to be worth less than the paper it was written on. .. The economic logic of why this matters runs deeper than one fund’s tax bill. Global capital operates on a simple principle: it seeks the highest post-tax risk-adjusted return available anywhere in the world. When India imposes source-based taxation—taxing foreign investors at our borders rather than letting their home countries tax them—it directly reduces their post-tax returns from Indian investments. To compensate for this tax cost, global investors demand a higher pre-tax return from Indian assets, which translates directly into a higher cost of capital for Indian companies and projects. Economist Ajay Shah illustrates this with a stark example: an investment project that makes financial sense at a 10% cost of capital becomes unviable at 14%. That 4% gap represents the factory that doesn’t get built, the jobs that don’t get created, and the salary increases that don’t materialise because the labor market never tightened. The Mauritius route existed precisely to solve this problem, allowing India to offer de facto residence-based taxation while maintaining the political fiction of taxing foreign capital. For three decades, this arrangement worked—foreign ownership in Indian equities rose steadily from 8.38% in 2001 to a peak of 19.19% by 2016. .. The data since 2016 tells the story of what happens when that arrangement unravels. Foreign direct investment from Mauritius collapsed from $15.72 billion in 2016-17 to just $6.13 billion in 2022-23, a decline of 61% that cannot be explained by global investment trends alone. Mauritius’s share of foreign portfolio investment assets fell even more dramatically, from 21% in 2015 to a mere 4.1% today. This capital didn’t evaporate—it migrated to Singapore, Ireland, and increasingly back to the United States and Europe, jurisdictions where investors don’t have to worry about tax treaties being retroactively reinterpreted. The Supreme Court’s reasoning creates a particularly corrosive form of uncertainty because it explicitly rejects the finality of Tax Residency Certificates. The 2003 Azadi Bachao Andolan judgment had established that a valid TRC was conclusive evidence of residency, and Indian tax authorities could not “look behind” this document. The Tiger Global bench acknowledged this precedent but held that “the legal and economic landscape has transformed” through subsequent amendments—effectively saying that what was legal and settled yesterday can be reopened tomorrow if the government decides conditions have changed. .. The Central Board of Direct Taxes has rushed to reassure investors that old cases won’t be reopened, but this assurance exists purely at the level of administrative discretion rather than legal protection. The Supreme Court has handed the tax department a loaded weapon; whether they choose to fire it is a political decision that can change with any new government or revenue shortfall. Foreign investors understand this distinction acutely, which is why “trust us” provides cold comfort when calculating long-term investment risk. India still needs foreign capital desperately—the infrastructure deficit, manufacturing ambitions under Make in India, and job creation targets all require investment that exceeds what domestic savings can provide. But capital is both fungible and cowardly, flowing toward jurisdictions where the rules of the game remain stable and away from those where courts can retroactively redefine what was permissible. The tax on the ₹14,500 case collected from Tiger Global will show up proudly in this year’s revenue figures. The lakhs of crores in investment that won’t come to India because of what this ruling signals will never appear in any government ledger—just in the jobs that don’t exist, the salaries that don’t rise, and the factories that get built in Vietnam instead. Based on reporting and analysis from multiple media outlets including Ajay Shah and Renuka Sane’s column on the India-Mauritius tax treaty. Sharp by Swarajya is a free daily newsletter from the Swarajya editorial team.
© 2026 Swarajya
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Rajaram Krishnamurthy
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