India just closed the offshore loophole that shaped an era of venture capital. On Thursday, India's Supreme Court backed the tax authorities in their challenge against Tiger Global, ruling that the fund's Mauritius-based entities couldn't claim treaty protection to avoid capital gains tax on its 2018 Flipkart exit during Walmart's $16 billion acquisition. The decision doesn't just settle one dispute—it rewrites the playbook for how offshore VC structures operate across Indian tech. The timing matters: this ruling arrives while foreign capital is flooding into India at record levels, forcing every investor counting on predictable exits to recalculate their tax exposure.

The ruling centered on a straightforward structure that had worked for years: Tiger Global, the Mauritian-domiciled fund that invested $9 million in Flipkart back in 2009, gradually built its position to roughly $1.2 billion across multiple funding rounds. When Walmart came calling in 2018 with a $16 billion acquisition, Tiger Global stood to pocket about $1.4 billion on the exit. Here's where the structure mattered: instead of taking the proceeds directly, Tiger Global routed the sale through Mauritius-based entities, then claimed protection under the India-Mauritius tax treaty's "grandfathering" clause—arguing that because the shares were acquired before April 1, 2017, the capital gains should face no withholding tax in India.

It was elegant. It was defensible. And for most of the case history, it worked. The 2020 Authority for Advance Rulings initially rejected the claim, but then the Delhi High Court overturned that decision in 2024, temporarily validating the offshore structure. That's when the inflection point should have registered: a two-judge Supreme Court bench disagreed. Sharply.

The Court's language matters more than the immediate outcome. "Taxing an income arising out of its own country is an inherent sovereign right of that country," the bench wrote. "Any dilution of this power through artificial arrangements is a direct threat to its sovereignty and long-term national interest." This isn't regulatory caution. This is a fundamental reassertion of India's tax authority, framed in terms of national sovereignty rather than technical tax law.

That reframing signals something deeper: the shift from passive regulatory concern to active enforcement doctrine. For years, offshore treaty-routing was the standard playbook. Every major VC fund operating in India—Sequoia, Andreessen Horowitz, Index Ventures—used variations of these structures. They weren't hiding anything, not technically. The tax authorities knew about the arrangements. The ambiguity kept everyone in a state of managed uncertainty. That equilibrium just broke.

Tax expert Ajay Rotti framed this correctly on X: "The judgment should be read as a caution against aggressive tax planning rather than a wholesale dismantling of the India-Mauritius treaty framework." But the distinction matters only if you're parsing legal doctrine. For investors actually calculating deal returns, this is simpler: the "substance over form" standard now governs. Mauritius entities without genuine business operations in Mauritius? The treaty doesn't protect those gains anymore. The old playbook works only if you've actually built real commercial infrastructure, not just paper entities.

Why now? The timing reveals something about how regulatory enforcement works in emerging markets. India's venture ecosystem is scaling faster than its tax administration matured. A decade ago, when Tiger Global was writing those checks into Flipkart, India's tax authorities didn't have the capacity to challenge deals at this scale. They do now. More critically, India's economic confidence has shifted. The country sees itself as a major economy asserting sovereign rights, not a developing market grateful for foreign capital. That confidence appears in the Court's language and in the government's willingness to challenge a prominent, sophisticated investor rather than settling quietly.

The precedent lands during the worst possible moment for the incumbent playbook. India venture funding is running at approximately $6-8 billion annually according to recent NASSCOM data. Foreign funds dominate allocation in Series B and later rounds. Every significant exit over the next 3-5 years will now operate under this new enforcement regime. Investors who structured deals 2010-2018 under the old assumptions face retroactive pressure. Those planning exits in 2026-2028 need to recalculate entirely.

Tiger Global itself can seek a review petition, though Supreme Court reviews are rarely successful. But what happens next extends far beyond one fund's appeal. The question now pivots to how other major exits get structured and priced. Does an expected $500 million exit now carry a 20% implicit tax haircut that didn't exist six months ago? Does that change which deals get done? Does India's regulatory clarity on this point actually accelerate some deals—investors wanting to close before other enforcement actions emerge—while killing others that depend on the old tax assumptions?

The market is already reacting. Investor conversations about India deals have shifted from growth narratives to structure conversations. How do you get capital in and gains out given this ruling? Some funds are exploring routes through subsidiaries with genuine operational presence in Singapore or Hong Kong rather than pure treaty vehicles. Others are pricing deals assuming higher effective tax rates—essentially accepting lower returns or requiring better terms to compensate. The sophistication of offshore capital structures, already high, just increased another notch.

What matters most now is velocity. How quickly do other Indian courts apply this precedent? Will the tax authorities use this ruling to challenge similar structures in other major exits? Tiger Global's case involved a Mauritius structure, but what about Singapore-domiciled entities claiming treaty protection under India's Singapore tax treaty? The Supreme Court's language—focused on "substance over form" and sovereign rights generally—suggests this precedent extends beyond Mauritius arrangements. That's the real inflection point: not one fund's loss, but the enforcement doctrine it establishes.

India's Supreme Court just shifted the risk calculus for every foreign investor with India exposure. This isn't the end of offshore structures—they're too useful for cross-border capital—but it's the end of their invisibility. The ruling establishes that India will aggressively enforce its sovereign taxing rights when transactions appear designed to dilute them. For investors, the window to restructure existing deals or price new ones based on the old assumptions is narrowing. Enterprise buyers and founders seeing capital exit in 2026-2028 should expect higher effective tax rates. The next threshold to watch: whether other major exits now face similar challenges, and whether the tax authorities use this precedent to reopen settled disputes.