CBDT Notification – Key Amendment to GAAR grandfathering provisions

In a significant policy development, CBDT has issued a notification, amending Rule 128 of the Income-tax Rules, 2026 pertaining to applicability of GAAR, with effect from 1 April 2026.

Rule 128(1)(d) grandfathered pre-April 2017 investments from GAAR. However, Rule 128(2) provided GAAR applies to any arrangement yielding a tax benefit on or after 1 April 2017 with no carve-out.

The Supreme Court in Tiger Global (January 2026) used this gap to hold that grandfathering does not protect exits occurring post-April 2017, even for pre-2017 investments.

Key Amendment:

1. Rule 128(1)(d) now grants an exemption to all income from transfer of such investments made before 1 April 2017 no longer restricted to specific instrument types.
2. Rule 128(2) now expressly carves out such income from GAAR provisions, even where the tax benefit arises post-April 2017.

This effectively dilutes the Hon’ble Supreme Court’s decision on applicability of GAAR provisions even on pre-2017 investments.

For the pending GAAR litigation before various High Courts involving pre-2017 investments, the amendment strengthens taxpayer positions significantly.

Source: https://www.incometaxindia.gov.in/documents/d/guest/notification-no-55-2026-1-pdf