Indian startup story won’t be derailed by Tiger Global tax verdict; returns matter more than structures, say venture capitalists

India’s startup ecosystem will not lose its luster despite the Supreme Court’s landmark ruling in the Tiger Global-Flipkart tax case, with venture capitalists saying high returns, market depth and growth potential matter much more than tax-efficient structures.

The apex court has ruled that capital gains arising from Tiger Global’s sale of its stake in Flipkart to Walmart are taxable in India, calling the Mauritius route “treaty shopping” and strongly supporting India’s right to tax income generated here. The verdict could potentially expose the global investor to a tax bill of over ₹14,500 crore and has sparked a debate on whether foreign capital could become cautious.

However, leading investors told CNBC-TV18 that the move is unlikely to derail the Indian startup story. Siddarth Pai, founding partner of 3one4 Capital, said India’s attractiveness as an investment destination does not depend on taxation alone. “The attractiveness of the Indian startup ecosystem doesn’t really depend on taxation,” Pai said, highlighting India’s large consumer base, rapid growth and vast talent pool. He added that while tax considerations play a role in investment decisions, they are not decisive.

Pai said the decision sends a clear message to global funds that tax optimization cannot be the primary objective. “Investors who are trying to optimize primarily for tax reasons need to shed that notion and work much harder to generate higher market returns,” he said, noting that recent startup IPOs have shown that India can generate “eye-popping returns” without aggressive tax planning. According to him, the uncertainty around the Mauritius route has effectively ended and more investors are likely to invest directly in India rather than through intermediary jurisdictions.

Mitesh Shah, co-founder of Inflection Point Ventures, echoed this view, saying India’s growth potential remains intact. “Taxation is a by-product. When you make gains, you pay taxes, it’s that simple,” Shah said, adding that the court reinforced the principle of substance over form. He believes that the decision will not deter serious investors and could even encourage the use of national structures such as GIFT City. Shah also highlighted that having real management and operational substance in the chosen jurisdiction will define future investment strategies.

From a tax advisory perspective, Ajay Rotti, founder and CEO of Tax Compaas, said the shift away from tax-focused structures has been in the works for years. “You can’t let the tail wag the dog. Tax must be a consequence of business activity,” Rotti said, adding that the Supreme Court verdict only cemented a trend the industry was already following. He noted that a similar move would have been disruptive a few years ago, but that businesses are better prepared today.

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Rotti warned, however, that the ruling could reignite concerns about tax certainty, especially since the court ruled that a tax residency certificate alone is not sufficient to qualify for treaty benefits. He warned that this reasoning could extend beyond Mauritius and extend to other treaty jurisdictions such as Singapore or the Netherlands, potentially affecting a wide range of transactions. He nevertheless maintained that, as a matter of principle, the verdict would not change the way real businesses are structured.

On the question of reopening past agreements, Pai said the application of anti-avoidance rules could prompt tax authorities to reconsider certain exits, particularly where substance is lacking. Despite this, Shah dismissed founders’ fears that global capital could dry up, saying India would continue to attract funding given the value it creates.

Overall, investors and advisors agree that the move marks the end of tax structuring, not the end of foreign interest in Indian startups. As Rotti summarizes, the message is clear: let businesses determine taxes, not the other way around.

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