Cross‑Border Tax Forecast 2026 in India

In a judgment dated 15 January 2026, the Supreme Court denied exemption on capital gains tax to Tiger Global entities under the India-Mauritius tax treaty. 
The court further held that a tax residency certificate (TRC) cannot be regarded as sufficient evidence to claim benefits under a tax treaty. Limited grandfathering is available to investments and not arrangements; where an “arrangement” continues to yield tax benefits after the introduction of General Anti-Avoidance Rules (GAAR) under the domestic tax law of India, the Indian tax authorities are empowered to examine the arrangement at the time such benefit arises, irrespective of the date of investment. Tax treaty benefits can be denied where the investment structure lacks commercial substance and constitutes an impermissible tax avoidance arrangement.

Tiger Global entities sold shares of a Singapore company to a Luxembourg buyer, leading to an indirect transfer of shares of Indian companies. 

The investment in shares of the Singapore company by Tiger Global entities was made before 01 April 2017; sale of the shares was made after 01 April 2017.

The issue before the court was to ascertain whether the arrangement was prima facie an arrangement for tax avoidance, and hence, whether the capital gains would be taxable in India under the domestic tax law read with the relevant provisions of the India-Mauritius tax treaty.

This decision marks a shift in the M&A and foreign investment landscape in India, fundamentally altering how transactions may be structured going forward. 
Holding structures claiming tax benefit/exemption upon exit are likely to face stronger substance and anti-abuse scrutiny.

A TRC is no longer “bulletproof” and residence/substance scrutiny is open for challenge by the tax authorities.

Private equity/venture capital/ foreign portfolio investors are likely to re-examine existing holding structures and reassess potential exit-related tax exposure.

Budget 2026, with change proposed to be effective from 1 April 2026.

The law on treatment of buy-back was amended with effect from 01 October 2024. Under the present law, consideration received on buy-back of shares was treated as dividend income in India. The cost of acquisition of shares bought back is allowed as capital loss. 

The Finance Bill 2026 proposes to restructure the tax treatment of buy-back. Buy-back proceeds are now to be taxed as capital gains in the hands of shareholders, with differentiated rates for promoter and non-promoter holdings.

Promoters will now be taxed in a higher tax bracket, making it inefficient for them to participate.

Foreign investors to consider treaty rate for dividend versus proposed tax liability as capital gains.

Budget 2026: proposed on 1 February 2026; effective date awaited.

Budget 2026 has clubbed together software development, information technology enabled services (ITeS), knowledge process outsourcing (KPO) and contract R&D services to propose a common safe harbour margin of 15.5% (previously 17%-24%). The safe harbour threshold has also been increased from INR 3 billion (approximately EUR 28 million) to INR 20 billion (approximately EUR 186 million). This safe harbour will be valid for up to 5 years and approval will follow an automated rule-driven process.

The proposal significantly reduces India’s mark-up cost for GCCs, improves India’s competitiveness for global service allocation, expands coverage to large captives by increasing the monetary cap, provides long-term certainty in Indian TP and minimises the discretion of the tax authorities by introducing an automated rule-driven process.

There is a potential risk of over-simplification of distinct function, asset and risk (FAR) profiles.

Multinationals should review India’s potential for being a GCC hub and conduct a cost-impact assessment based on their specific objectives.

Budget 2026, with changes proposed to be effective from 1 April 2026.

Unilateral APA to be fast-tracked for IT services and to be concluded within 2 years, with an extension of 6 months on taxpayer’s request.

Further, under the existing law, only a taxpayer with an APA can file a modified return; Budget 2026 proposes to allow associated enterprises (AEs) to also file a modified return within 3 months from the end of the month in which the APA is executed.

This proposal will positively impact the IT sector given the fast-tracked timelines. AEs can now claim refunds of additional taxes paid or withheld based on APA adjustments. This enhances tax certainty for the multinational group, enables alignment of tax positions across affected entities, reduces TP disputes and streamlines the implementation of APAs across group structures.

AEs should review proposed APA arrangements and, if an APA is planned to be executed before 1 April 2026, consider executing it on or after that date to benefit from the new provisions.

AEs should also update internal processes to claim refunds promptly, maintain proper documentation to support APA adjustments, and coordinate across group entities to align tax positions and comply with the 3-month filing timeline.

Budget 2026, with changes proposed to be effective from 1 April 2026.

Budget 2026 proposes a tax holiday for foreign companies providing cloud services to global customers through India-based data centre services until 2047. However, services to Indian users are required to be routed through an Indian reseller entity.

It further proposes a safe harbour margin of 15% on cost for AEs providing data centre services from India.

For non-residents providing component warehousing in a bonded warehouse, a safe harbour profit margin of 2% of invoice value is proposed.

The proposal incentivises the use of India-based data centre infrastructure for global cloud services by foreign companies through a long-term tax holiday.

The introduction of safe harbour margins provides certainty on TP for data centre services and component warehousing activities.

Foreign companies should evaluate the feasibility of migrating or expanding global cloud operations services through India-based data centres.

Review existing TP models against the proposed safe harbour margins.

Budget 2026, with changes proposed to be effective from 1 April 2026.

Budget 2026 proposes to extend the tax holiday for units in IFSCs and OBUs from the existing 10 years to 20 years.

Further, post the tax holiday period, the business income of such IFSCs/OBUs would be taxable at a concessional rate of 15%.

Additional tax holiday for 10 years and reduction in the tax rate post tax holiday.

No actions

Budget 2026, with changes proposed to be effective from 1 April 2026.

Budget 2026 proposes a tax exemption for foreign companies on income arising from the supply of capital goods, equipment or tooling to an Indian contract manufacturer, where such manufacturer produces goods on behalf of the foreign company for consideration, subject to prescribed conditions.

The proposal aims to promote domestic manufacturing of electronic goods under the contract manufacturing model and to provide tax certainty to foreign companies regarding the tax treatment of capital equipment supplies.

Foreign companies should assess the applicability of the proposed exemption to their contract manufacturing arrangements in India, review existing and proposed supply structures for capital equipment used in such contract manufacturing, and evaluate compliance with the prescribed conditions. Contract terms and documentation may be revisited to align with the exemption requirements and ensure tax certainty.

Budget 2026, with changes proposed to be effective from 1 April 2026.

Budget 2026 proposes to provide tax certainty to non-resident individuals visiting India to render services in connection with schemes notified by the Indian Government.

Foreign-sourced income of such individuals is proposed to be exempt from tax in India for 5 consecutive years, subject to prescribed conditions. 

Global income of non-resident individuals, which would otherwise become taxable in India upon attaining Indian tax residency, will not be taxable in India for a period of 5 years.

Non-resident individuals should evaluate the applicability of the proposed exemption to their existing India-related service engagements.

Employers should review contractual arrangements and compensation structures to align with the exemption and ensure tax certainty.

Budget 2026, with changes proposed to be effective from 1 April 2026.

While MAT is currently not applicable to foreign companies opting for presumptive taxation in certain businesses, Budget 2026 proposes to extend this benefit to provide that no MAT liability shall apply to non-residents opting for the presumptive taxation scheme in respect of:

• the operation of cruise ships
• the business of providing services or technology for setting up an electronics manufacturing facility in India.

Foreign companies in the specified businesses can opt for the presumptive taxation scheme without incurring MAT liability, providing certainty and potentially reducing the effective tax burden.

Foreign companies should evaluate the applicability of the presumptive taxation scheme to their operations in India and assess potential tax savings.