Explained: How CBDT's GAAR tweak changes taxation for investors
New Delhi, Apr 2, 2026
It makes it clear that GAAR cannot be applied to income from pre-2017 investments, regardless of when they are sold.
India has moved to clear up a major confusion around how older investments will be taxed, offering relief to investors who were worried about unexpected tax demands. The Central Board of Direct Taxes (CBDT) has amended the Income-tax Rules, 2026 to clearly state that any income earned from selling investments made before April 1, 2017 will not be subject to the General Anti-Avoidance Rules (GAAR). In simple terms, if you invested before GAAR came into force, your gains from selling those investments—even today—will remain protected.
What is the issue about?
At the centre of this is something called GAAR (General Anti-Avoidance Rules).
Introduced in the 2012–13 Union Budget, GAAR aims to prevent tax avoidance
It targets arrangements that lack real business purpose (commercial substance)
It came into effect from April 1, 2017
To protect investor confidence, the government had earlier said:
Investments made before April 1, 2017 would be “grandfathered”
Meaning: they wouldn’t be affected by GAAR
The proposal, however, generated controversy, with investors expressing apprehensions that it would result in unnecessary harassment by tax authorities.
GAAR rules were finally implemented on April 1, 2017. It also provided that any transaction, arrangement or tax benefit from investments acquired before April 1, 2017, would be grandfathered.
So what changed earlier?
Confusion arose after the Supreme Court of India ruling in the Tiger Global case (January 2026).
US-based Tiger Global exited Flipkart in 2018
It claimed no capital gains tax due to grandfathering under the India–Mauritius treaty
But the tax department argued the structure lacked substance
The Supreme Court ruled that GAAR could still apply, even to pre-2017 investments, if the structure was seen as a tax-avoidance arrangement
This created uncertainty:
Could old investments suddenly face tax scrutiny?
Was grandfathering no longer absolute?
What has changed now?
The Central Board of Direct Taxes (CBDT) has amended Income-tax Rules, 2026, saying that any income accruing or received by any person from transfer of investments made before April 1, 2017, will not come under the General Anti Avoidance Rules (GAAR).
AKM Global Partner-Tax Sandeep Sehgal, said the amendment to Rule 128 of the Income-tax Rules, 2026 is largely clarificatory in nature and helps remove ambiguity around GAAR grandfathering.
"It effectively resolves the interpretational uncertainty highlighted in that ruling on the interplay between GAAR and grandfathering where tax benefits arise post-2017. This clarification provides much-needed certainty to investors, while ensuring that GAAR continues to apply to post-2017 arrangements," Sehgal said.
What does this mean?
CBDT has amended tax rules (via Notifications 54 and 55 of 2026) to clearly state:
Income from investments made before April 1, 2017 will NOT be subject to GAAR
This applies even if the sale (transfer) happens after 2017
In simple terms:
Old investments are fully protected
Tax authorities cannot invoke GAAR on such gains
The earlier ambiguity is now removed
"The CBDT issued Notifications 54 and 55 of 2026 on March 31, 2026, amending Rule 10U of the Income-tax Rules to explicitly exclude GAAR application on income arising from transfers of investments made before April 1, 2017, irrespective of the date of transfer. This overrides prior ambiguities following the Supreme Court’s January 2026 Tiger Global judgment, which applied GAAR to deny tax treaty benefits for post-2017 gains from pre-2017 investments lacking commercial substance. The amendment mandates that tax authorities shall not invoke GAAR in such cases, providing absolute grandfathering protection and restoring investor certainty for legacy holdings," said Alay Razvi, Managing Partner, Accord Juris.
"The CBDT had introduced amendments to Income-tax Rules, which were intended to grandfather income arising from transfer of investments made prior to April 1, 2017 from the application of GAAR. However, the Supreme Court's decision in Tiger Global held that these rules cannot be read as conferring a blanket exemption from a challenge on grounds of treaty abuse. The Court clarified that the grandfathering benefit can only be claimed if the pre-2017 investments do not form part of ‘arrangement’ that lack commercial substance.
The recent amendments seek to reverse the impact of the Tiger Global ruling by clarifying that income arising from grandfathered investments shall continue to be shielded from GAAR," added Kunal Savani, Partner, Cyril Amarchand Mangaldas.
Why is this important?
1. Ends fear of retrospective taxation
Investors were worried that past investments could face new tax demands. This clarification removes that fear.
2. Restores investor confidence
Foreign investors—especially those using structures like Mauritius—now have certainty on tax treatment.
3. Reduces litigation
The Tiger Global ruling had opened the door for disputes. This move shuts many of those doors.
4. Aligns with original intent
The government had always promised grandfathering. Now, the rules clearly reflect that intent again.
"This clarification is both welcome and much needed. The CBDT has confirmed that GAAR will not apply to investments made before April 1, 2017, for cases where such investments are transferred thereafter. 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," said
Ritika Nayyar, Partner, Cyril Amarchand Mangaldas.
Does this mean GAAR is irrelevant now?
Not at all.
GAAR still applies to:
Investments made after April 1, 2017
Structures that lack commercial substance
The Tiger Global judgment still matters for:
Cases involving treaty abuse
Complex holding structures
Deloitte India Partner Rohinton Sidhwa said the controversy largely centers around the applicability of the Mauritius treaty benefits to grandfathered investments which was discussed in detail by the Supreme Court in the case of Tiger Global. The court held that because of the overriding impact of GAAR, benefits under the treaty would not be available irrespective of the grandfathering provision. "The circular has corrected this understanding by dropping the "without prejudice" wording relied upon by the SC," Sidhwa said.
The move is expected to boost investor confidence, especially among foreign funds that rely on stable tax rules. Riaz Thingna of Grant Thornton Bharat said the notification ensures that gains earned up to April 1, 2017 remain protected from later tax changes. That said, some experts caution that while the investment itself is protected, questions around complex holding structures may still arise, meaning GAAR is not entirely out of the picture.
Overall, the message is straightforward: investments made before April 1, 2017 are safe from GAAR. The government has restored its original promise, reducing uncertainty and making India’s tax regime more predictable for long-term investors.
[The Business Standard]
