CBDT Clears GAAR Doubts, Exempt Pre 1 April 2017 Capital Gains

The Central Board of Direct Taxes (CBDT) has amended the Income Tax Rules to clarify that capital gains, which are a result of investments made before 1 April 2017, will not be the subject of General Anti-Avoidance Rules (GAAR) and are thus exempt.

The government has modified Rule 128 of the Income Tax Rules, 2026, to unequivocally exclude investments made prior to 1 April 2017 from the coverage of GAAR.

The amendment has been declared effective from the 1st of April 2026.

That said, Chapter XI of the Income Tax Act, 2025, shall remain in force wherever tax benefits are availed on or after 1 April 2017.

What Triggered The GAAR Uncertainty?

The issue gained attention after the Supreme Court ruling in the Tiger Global case earlier this year.

The Court held that New York-based Tiger Global was liable for capital gains tax on its 2018 exit from Flipkart, rejecting treaty benefits with Mauritius.

This verdict resulted in a much broader level of concern. There were worries among investors that the GAAR might be used to target even the old investments if their gains were realised after 1 April 2017, which would then dilute the protection that was earlier ensured by grandfathering rules.

The latest amendment addresses that concern by stating the position clearly. Investments made before 1 April 2017 will remain outside GAAR, regardless of when gains are booked.

How Does The Amendment Impact Foreign Investors?

For funds focused on private equity and venture capital, this clarification addresses their biggest practical concern.

A number of investors had put their exits on hold as they were unsure about the tax treatment.

Now that the rule is clear, investment vehicles holding positions can look more confidently at their tax liability arising from the realisation of capital gains.

It reduces the risk of disputes and supports better exit strategy planning.

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What Should Investors Watch For Going Ahead?

The immediate effect could be a gradual increase in exits from older investments, especially where deals were delayed due to tax concerns.

At the same time, attention will shift to investments structured after 1 April 2017. These transactions remain open to GAAR review, and tax authorities may conduct a more thorough examination of them.

Investors are likely to be more careful in structuring new deals, while legacy portfolios move forward with fewer uncertainties.

Sources:

Financial Express

The Hindu