Tax Dispute Over Offshore Investments Impacts Indian Startups
Market dynamics are reshaping investment approaches, with 41% of Indian investors showing a preference for secondary deals. In 2019, Haptik was acquired by Reliance for INR 200 crore, while Mensa Brands acquired India Lifestyle Network in 2022. Furthermore, 18 startups raised INR 41,000 crore via initial public offerings (IPOs), and six startups entered the Unicorn Club in 2025.
A contentious tax dispute involving offshore investment structures has significant implications for Indian startups and foreign investors. The case, centered on the taxability of gains from offshore investments in Indian companies, has reached a conclusion with the Supreme Court of India ruling against Tiger Global Management.
Offshore Investment Structures Under Scrutiny
The dispute revolves around the use of offshore investment vehicles by Tiger Global, a major player in venture capital and private equity. The tax authorities in India have argued that the gains from these structures should be taxed within the country. Tiger Global, however, maintains that its investment structures, which involve foreign-based funds and entities, are legitimate.
These foreign entities held stakes in prominent Indian companies, and exits were often structured through offshore holding entities. A notable case involved the exit linked to Flipkart's acquisition by Walmart. The Supreme Court upheld the claims of the Indian tax authorities, asserting that the legal form of these transactions could not override their economic reality. The ruling emphasized that the General Anti-Avoidance Rule (GAAR) could be invoked due to a lack of commercial substance.
Implications for Venture Capital and Private Equity
The ruling has far-reaching implications for venture capital (VC) and private equity (PE) fund structures. It strengthens the tax department's oversight on offshore structures and affects the tax on indirect transfers linked to Indian assets. The decision is likely to influence future startup exit structures and increase scrutiny of treaty-based tax planning.
This development supports India's push for greater tax certainty and aims to prevent aggressive tax avoidance. The case has also affected foreign investor confidence, with implications for investment strategies and fund structures. As the market adapts, investors are likely to reassess their approaches to investing in Indian startups.
Impact on the Startup Ecosystem
The Supreme Court ruling occurs amid a landscape where Indian tech startups are demonstrating resilience amid funding challenges. Despite a decline in funding in recent years, investment trends indicate a shift in strategies. Tech startups are adapting to changing market conditions through innovation and strategic pivots.
While the ruling may increase the complexity of investment structures, investors remain cautiously optimistic about future opportunities in India. Government policies could influence the startup funding landscape, and diverse funding sources are emerging to support Indian startups. Market dynamics are reshaping investment approaches, with 41% of Indian investors showing a preference for secondary deals.
Recent Developments in the Indian Startup Scene
Amid these challenges, the Indian startup scene has witnessed significant developments. Clensta was acquired by Florida Beauty Labs, and Reliance offered to acquire Dunzo. In 2019, Haptik was acquired by Reliance for INR 200 crore, while Mensa Brands acquired India Lifestyle Network in 2022. Furthermore, 18 startups raised INR 41,000 crore via initial public offerings (IPOs), and six startups entered the Unicorn Club in 2025.
Despite the obstacles, Indian tech startups continue to show resilience, with investors exploring new funding strategies and government policies playing a crucial role in shaping the future of the startup ecosystem. As market dynamics evolve, the Indian startup landscape is poised for transformation, driven by innovation and strategic adaptation.
“The decision strengthens the tax authorities' oversight and could reshape how foreign investors approach investments in Indian startups.”
The case underscores the importance of aligning investment strategies with regulatory expectations and highlights the need for clarity in tax regulations to foster a conducive environment for both domestic and foreign investors.