Indian Startups Seek Tax Certainty as Supreme Court Ruling Raises Investor Anxiety

For nearly a decade, India’s startup ecosystem has sold a powerful story to the world — of scale, speed, and ambition. From small digital experiments to billion-dollar enterprises, Indian startups have drawn global capital in record volumes, often positioning the country as one of the most attractive innovation markets outside Silicon Valley. But a recent Supreme Court ruling has unsettled that narrative, prompting startup founders and investors alike to seek urgent clarity from the government.

At the heart of the concern is a landmark judgment delivered last week by the Supreme Court of India, which ruled that Mauritius-based entities used by Tiger Global to sell its stake in Flipkart to Walmart in 2018 were “conduits” created to evade taxes under the India–Mauritius tax treaty. The deal in question involved Tiger Global’s exit from Flipkart, estimated at around $1.6 billion.

While the ruling focuses on a specific transaction, its implications stretch far wider — especially for India’s startup economy, which has long relied on overseas capital structured through tax-friendly jurisdictions.

Why the ruling has rattled investors

For years, global investors routed funds into India through Mauritius, taking advantage of treaty benefits that allowed capital gains tax exemptions. The Supreme Court’s decision disrupts this established practice by stating that India’s domestic anti-tax-evasion laws can override treaty benefits if those benefits are claimed wrongly.

This interpretation has triggered fears that older investments — made before regulatory changes in 2017 — could now come under scrutiny. For startups built on multiple funding rounds, often involving complex international structures, the uncertainty is deeply unsettling.

Tiger Global has denied any wrongdoing, stating that it correctly used the tax benefits available under the treaty. However, it has not commented directly on the court ruling itself.

Startup founders ask for reassurance

Responding swiftly to the anxiety rippling through the ecosystem, the Startup Policy Forum, which represents around 60 Indian startups, has written to the finance ministry urging the government to step in.

In a letter dated January 20 and reviewed by Reuters, Shweta Rajpal Kohli, CEO of the forum, warned that the ruling could “send mixed signals to foreign investors” and have “longer-term implications for India’s startup ecosystem.” The group has asked the government to reaffirm its earlier commitment that investments made before 2017 would not be subjected to retrospective taxation — a promise made when the India–Mauritius treaty was revised.

The forum’s membership includes some of India’s most visible startup names, such as Meesho, Acko, and Swiggy — companies that have collectively raised billions of dollars from global investors over the years.

Neither the finance ministry nor the startup group has publicly commented on the letter so far.

Government pushes back on fears

The government, however, has sought to downplay the broader impact of the ruling. Additional Solicitor General of India N. Venkataraman dismissed concerns that the judgment would harm foreign investment, calling such fears “a distraction” and suggesting that the market reaction was driven more by rumor than reality.

Yet data underlines why the issue matters so deeply. According to official government figures, Mauritius has been India’s single largest source of foreign investment over the past two decades. Between 2000 and 2023, India received about $171 billion in foreign inflows from Mauritius — roughly a quarter of all foreign investment during that period. A significant share of this capital found its way into startups, fueling India’s digital economy.

A delicate moment for India’s startup story

The timing of the controversy is critical. India is pitching itself as a stable, predictable destination for global capital, especially as competition intensifies with other emerging markets. Any perception of policy uncertainty — particularly around taxation — risks slowing investment decisions at a moment when startups are already navigating funding slowdowns and profitability pressures.

For founders and investors, the ask is simple: clarity. They are not seeking new incentives, but reassurance that rules will not be rewritten retrospectively. As one investor sentiment suggests, innovation thrives on risk-taking — but not on regulatory ambiguity.

How the government responds in the coming weeks could shape investor confidence for years to come. For now, India’s startup ecosystem waits, hoping that clarity will arrive before uncertainty becomes the bigger story.