‘When the world slows down, India speeds up.’ This perhaps sums up the market mood. From Q3CY24 to Q3CY25, India’s M&A value surged by 37% to an impressive $26 billion across 649 transactions. Notable transactions included Tata Motors’ $4.45 billion acquisition of Iveco, Japanese financial group MUFG acquiring a 20% stake in Shriram Finance for $4.4 billion, Adani Ports’ $2.07 billion outbound acquisition of Abbot Point Port, and Sumitomo Mitsui Banking Corporation’s 20% stake in YES Bank for $1.6 billion. While sectors such as banking, financial services, and insurance (BFSI) witnessed massive investments, technology, media, and telecommunications (TMT) led in deal volumes, particularly in AI, cloud, and cybersecurity.

In an era where due diligence is becoming increasingly data-driven, good governance and transparency are now the bare minimums. AI is challenging the fundamentals of deal execution; India is still struggling with the basics; and the factors listed below are hindering robust development of the M&A space.

The tryst of anti-abuse doctrine with legitimate tax planning

The evolution of India’s Judicial Anti-Avoidance Rules (JAAR) can be seen through the lens of significant judicial decisions that have shifted the focus from form-based tax planning to a more thorough scrutiny of restructurings and foreign investments based on their substance. Past rulings of the Supreme Court supported treaty-driven structures of tax planning, unless characterised as sham or fraudulent.

After 2017, the General Anti-Avoidance Rules (GAAR) legislation empowered the tax department to disregard structures that lack commercial substance, thereby limiting the reach of treaty-based structures.

The recent Supreme Court decision in the Tiger Global-Flipkart case has reinforced the view that GAAR can override tax treaty entitlements. The decision clarifies that possession of a valid Tax Residency Certificate (TRC) is insufficient for investment entities set up as conduits in Mauritius to claim treaty benefits. The ruling further denies the promised grandfathering benefit on investments made before April 1, 2017, under the India-Mauritius tax treaty and reinforces the principle of ‘substance over form’ in such structures.

With the introduction of the ‘multilateral instrument’, most Indian tax treaties prescribe an overarching threshold of fulfilling the principal purpose test, which is more onerous than GAAR for claiming treaty benefits. From a policy perspective, it would bring much clarity if there were guidance on situations in which the tax authorities are likely to question the commercial substance of a structure and invoke GAAR.

The testing of structures on the altar of GAAR has percolated to increased scrutiny of transactions in group restructurings. A case in point is the recent GAAR panel ruling on Hinduja Group’s NCLT-approved demerger and Vedanta’s Mauritius holding structure. These transactions have been re-characterised by the tax department as impermissible avoidance arrangements despite having regulatory approvals, emphasising that transactions cannot be shielded from scrutiny if the primary purpose is to obtain a tax benefit.