Business

Taxman’s JAARing move opens big new debate

By Sohail Khan 17 September 2026, 12:09 am

Benchmarks
Nifty23,217.6099.0

FEATURED FUNDS★★★★★

Motilal Oswal Midcap Fund Direct-Growth

5Y Return
22 %

Invest Now

Enter search text:

Business News›News›Economy›Policy›Taxman's JAARing move opens fresh debate over Mauritius treaty

Read Today's Paper

Taxman's JAARing move opens fresh debate over Mauritius treaty
Synopsis

The recent invocation of JAAR, a GAAR-type tool in the armoury of the taxman, in a certain case has stunned many. Even though technically the tax department has the power to invoke JAAR, the recent move was entirely unforeseen following the CBDT assurance and subsequent change in the law to spare grandfathered shares from GAAR.

Mumbai: In an unsettling decision, the Indian tax office has invoked the Judicial Anti Avoidance Rule (JAAR) to deny treaty benefits to a few Mauritius funds on sale of 'grandfathered shares'.

Under the India-Mauritius amended treaty, there is no capital gains tax on profits from sale of grandfathered shares which refer to securities bought before April 1, 2017.

Tax officials have typically used General Anti-Avoidance Rules (GAAR) to quash treaty benefits whenever they suspected that a foreign investor's outfit in jurisdictions like Mauritius and Singapore lacked 'commercial substance'. Such offshore investors having a paper office or shell company, with few or no employees, and alleged to have been established primarily to obtain tax benefits.

However, in end-March this year, the apex body Central Board of Direct Taxes (CBDT) issued a notification to clarify that earnings from transfer of stocks acquired before April 1, 2017 would not be impacted by GAAR. This came as a relief to foreign portfolio investors (FPIs) as well as foreign direct investors like private equity and VC funds.

Also read | The dealmaker meets his match in a central banker

Against this backdrop the invocation of JAAR, a similar tool in the armoury of the taxman, has stunned many. Even though technically the tax department has the power to invoke JAAR, the recent move was entirely unforeseen following the CBDT assurance and subsequent change in the law to spare grandfathered shares from GAAR.

"This is likely to cause significant uncertainty among foreign investors, whose confidence was already shaken by the Tiger Global ruling. It is hoped that the government will provide greater clarity on this issue in a way that reassures both foreign investors and treaty partners by enhancing certainty around India's tax regime," said Keyur Shah, head of tax at Alvarez and Marsal India.

Sources told ET that at least three foreign investors, including FPIs, have been served draft assessment orders, mentioning the invocation of JAAR, in the last three weeks. They said some of the officials in the tax department have chosen to slap JAAR as they could no longer resort to GAAR for grandfathered shares.

In the world of tax laws, JAAR and GAAR operate parallelly. However, while GAAR, typically applied when tax benefit exceeds ₹3 crore, is a codified law, JAAR stems from case laws and judicial pronouncements.

A few practitioners, however, think it may be a leap of faith for foreign investors to believe that a protection from GAAR would automatically extend to JAAR. According to chartered accountant Ashish Karundia, "The grandfathering protection (treaty entitlement as well as treaty benefit) for investments made before April 2017 is available specifically in the context of GAAR. But, there is no such statutory protection where treaty entitlement is examined under JAAR. The distinction between treaty entitlement and treaty benefit is important. Entitlement is the first question-whether the taxpayer can invoke the treaty in the first place. Only after that is established does the question of treaty benefit arise. Therefore, if treaty entitlement itself is denied under JAAR, the grandfathering protection cannot be relied upon merely because the investment was made before April 2017."

Also read | India’s B-schools slip on intense global competition

JAAR stems from English common law that backs a taxpayer using a structure to escape tax. However, this stand was questioned by the Supreme Court in a landmark case in 1985. According to the apex court, 'colourable devices' like sham deals, artificial arrangements, or dubious strategies cannot be justified as legitimate tax planning.

Add as a Reliable and Trusted News Source
Add Now!

(You can now subscribe to our WhatsApp channel)

(You can now subscribe to our WhatsApp channel)

Read More News on
Judicial Anti Avoidance Rulegrandfathered sharesJAARGAAR

Enter search text:

Continue reading with one of these options:
Limited Access
Free
Login to get access to some exclusive stories

& personalised newsletters
Login Now

Unlimited Access
Starting @ Rs120/month
Get access to exclusive stories, expert opinions &

in-depth stock reports
Subscribe Now

Unlock Access to All Exclusives with ETPrime FREE TRIAL

15 Days Free: Unlock All ETPrime Exclusives, Market Tools & ePapers

Trial offer expiring in00 : 05 : 00

I'd rather pay ₹2599 now

Uh-oh! This is an exclusive story available for selected readers only.

Worry not. You’re just a step away.

Prime Account Detected!

It seems like you're already an ETPrime member with

Log out of your current logged-in account and log in again using your ET Prime credentials to enjoy all member benefits.

Unlock ETPrime's Exclusive Stories Today!

Subscribe to gain powerful insights on business, stock market and industry trends.

Big Price Drop! Flat 40% Off

Student Only Offer

Already a Member? Sign In now

Already a Member? Sign In now
Already a Member? Sign In now

Offer Exclusively For You

Save up to Rs. 700/-

ON ET PRIME MEMBERSHIP

Avail Offer

Offer Exclusively For You

Get 1 Year Free

With 1 and 2-Year ET prime membership

Avail Offer

Offer Exclusively For You

Get 1 Year Free

With 1 and 2-Year ET prime membership

Avail Offer

Offer Exclusively For You

Get Flat 40% Off

Then ₹ 1749 for 1 year

Avail Offer

Offer Exclusively For You

ET Prime at ₹ 49 for 1 month

Then ₹ 1749 for 1 year

Avail Offer

Special Offer

Get flat 40% off on ETPrime

Avail Offer
Avail Offer

Claim NowAlready a Member? Sign In now

Need Assistance?

Connect with an ETPrime expert for personalized support and guidance

+91 9484700004

' + h3 + '

' + h4 + '

' + listing + '

What’s Included with

ETPrime Membership

1Exclusive Insights That Matter

Uncover the truth with our investigative stories

Make strategic moves using the real-world case studies

Read industry-specific stories to identify emerging trends

Spot opportunities with in-depth insights that matter

Trump temper on H-1B visas is forcing Indians to do these things to stay put in US

What Adani’s US indictment means for India Inc’s overseas fundraising
Why veterans like Reliance, L&T are on acquisition spree? Aswath Damodaran has an answer.

Will China’s dollar bond sale in Saudi Arabia trump the US in financial world?
Huawei launches its own OS to compete with Google and Apple. But can it win beyond China?

The problem with lab grown diamonds
Why a falling rupee is a better option for the economy

A list of top 20 momentum stocks that have delivered massive returns in one year