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• II. Rule 9B of the PAS Rules:
  • It provides that a private company which is not a “small company” according to audited financial statements ending on 31st March 2023 is mandated to dematerialise its securities by 30th June 2025.
  • Such companies and their securities holders who intend to transfer, subscribe, issue or buyback securities, as the case may be, shall ensure that all the securities are held in demat form before such transfer or subscription or issue.
  • Companies are mandated to facilitate dematerialization through Depositories and comply with Depositories Act, 1996.
• III. Definition of Small Companies:

  Here is a table presenting a bird’s eye view of amendment to the threshold for classification of companies as “small companies” under the Section 2(85) of the Companies Act, 2013 read with rule 2(t) of Companies (Specification of definitions details) Rules, 2014 –

  Criteria	Threshold as on 15.09.2022	Threshold as on 01.12.2025
  Paid up share capital shall not exceed	INR 4 crores	INR 10 crores
  Turnover (in the immediately preceding financial year) as per the P&L account shall not exceed	INR 40 crores	INR 100 crores

• IV. Analysis
  • It is trite to note that the amendment to the definition of small companies is prospective in nature, meaning it shall apply to future laws/regulations.
  • Moreover, Rule 9B of PAS rules benchmarks audited financial statements for the year ending on 31st March 2023, to determine the nature of the company.
  • That is to say, if a Company as per audited financial statements for year ending on 31st March 2023 has a paid-up capital of more than 4 crore and turnover of more than 40 crore, shall be classified as “private company”.
  • The proviso to rule 9B merely provides a compliance timeline for companies to convert their securities into demat form, serving only to set the clock ticking without altering the substantive obligation.
  • If you were a private company with paid-up share capital more than 4 crore and turnover of more than 40 crore as per audited financial statements for the year ending on 31st March 2023, you must convert your shares into demat form. The statements for financial year 2024-25 and the enhanced thresholds of “small companies” are immaterial.
  • Therefore, it may be concluded that enhancement in threshold vide the notification dated 01st December 2025 brings little to no relief for companies which had already crossed the earlier threshold as on 31st March 2023.


• V. Conclusion:

The mandate for dematerialisation under Rule 9B of the PAS rules reflects the MCA’s broader policy objective of strengthening transparency, governance, and digital compliance among private companies. The subsequent enhancement of the financial thresholds for determining a “small company” - effective 01st December 2025 - does signal the government’s intention to ease regulatory burdens for a wider class of enterprises. However, it is pertinent to note that the benefits of amendment to the definition of small companies does not ipso facto apply to the exemptions from dematerialisation. Existing companies must review their audited financial statements for the year ending on 31st March 2023 in light of the conditions under rule 2(t) of Companies (Specification of definitions details) Rules, 2014 read with Rule 9B of the PAS rules.

The FEMA Lens: Current vs Capital Account Transactions

FEMA uses a simple logic:

Does the gift change assets or liabilities between India and another country?

If yes, it becomes a capital account transaction (more regulated).

If no, it stays a current account transaction (less regulated).

Broadly:

• Money gifts → current account transaction
• Shares / Immovable property → always capital account transaction

Let’s dive into each asset class without the jargon overload.

• Gifting Money Across Borders

  Money gifts are the most common — and the rules are fairly straightforward.

  When a Resident gifts money to a Non-Resident

  • Allowed under the Liberalised Remittance Scheme (LRS)
  • Limit: USD 250,000 per financial year
  • Must be routed through Authorized Banking channels no crypto gifts.

  When an NRI/OCI gifts money to a Resident

  Funds would need to be routed through:

  • NRE or NRO account of the NRI/OCI, or
  • Inward remittance from abroad through authorized Category I AD Bank channels.

  This is one of the simpler parts of FEMA — as long as you route the funds properly.

  While the rules address gifting between two individuals of different residential status, there are often cases where some transactions would not directly come under the purview of specified transactions but in such cases the intent is reviewed for permissibility. For instance, consider gifting between two NRIs. What happens to gifting between NRO accounts of two Non Resident Indians?

  These transactions are primarily governed by the underlying spirit and intent rather than a rigid, literal reading of the law. Each case is assessed on its specific facts, with the overarching principle that the outcome must not lead to any activity expressly prohibited under FEMA. The AD banks scrutinize them for genuineness of purpose rather than applying the rules mechanically.

• Gifting Shares & Securities

  This is where things get technical, but here’s the simplified version.

  Common transactions for cross border gifting of shares , specifically, that of an Indian Private Limited Company

  • Resident → Non-Resident
  • Non-Resident → Resident

  What FEMA says:

  • Shares must belong to an Indian company
  • A valuation report is mandatory
  • Sectoral caps and FDI rules apply
  • If either party is a resident, Form FC TRS reporting must be filed within 60 days

  In case of Gifting of Shares from a Non-Resident to a Resident:

  • The above conditions would apply, unless the Equity instruments held by the Non-Resident were on a Non-Repatriable basis.

  In case of Gifting of Shares from a Resident to a Non-Resident:

  • Prior RBI approval is mandatory.
  • The Gift does not exceed five-percent of the paid up Capital of the Indian Company.
  • The Doner and the Donee shall be “Relatives” within the meaning in Clause (77) of Section 2 of the Companies Act, 2013.
  • The value of securities Gifted by the Donor to persons outside India during a Financial Year must not exceed the rupee equivalent of USD 50,000/-.

  Important:

  In case of Listed Entities, where the investment being gifted falls within the thresholds of 10%, Foreign Portfolio Investment (FPI) Regulations would apply. The above mentioned is specific to Foreign Direct Investment (FDI) Regulations.



• Gifting Immovable Property Situated in India

  Property is where FEMA rules are more stringent and contain specific restrictions and permissions

  Resident → NRI/OCI

  Allowed only if the recipient is a relative as per Section 2(77) of the Companies Act, 2013

  NRI/OCI → Resident

  This allows for non“relative”gifting as well.

  Not allowed to gift:

  • Agricultural land
  • Plantation property
  • Farmhouses

  Required:

  • A fair valuation report
  • Proper documentation and registration as per state laws

  Even gifts must be valued — FEMA treats property as a capital asset with real financial implications.

So When Does a Gift Become a Capital Account Transaction?

A gift turns into a regulated capital account transaction when it involves:

• Shares / securities, or
• Immovable property

These always move into capital account territory because they involve assets that FEMA tracks closely.

Money gifts, on the other hand, usually sit under current account rules — especially when routed via LRS.

Final Thoughts

Crossborder gifting isn’t complicated if you know the rules.These regulations keep transfers clean, transparent, and traceable.

A few simple steps go a long way:

• Route money through the right accounts
• Get proper valuations for shares and property
• Check who qualifies as a “relative”
• File the required forms on time
• Avoid cash and crypto (always!)

Geopolitical Risk – Is It a Game Changer?

Suppose a major economy announces a steep tariff increase on a specific sector. Is this merely an economic update, or does it have the potential to alter your valuation approach altogether?

The answer lies in how exposed your business is to these geopolitical developments. Geopolitical tensions affect businesses through multiple channels, such as supply chain disruptions, pricing impacts, currency fluctuations, policy uncertainties etc. If the outcome of these changes has the ability to materially affect operations or profitability, then even businesses with strong fundamentals can see their valuation assumptions challenged.

In today’s interconnected economy, geopolitical risk is no longer limited to a single sector. Due to global dependencies, its impact can extend across industries, geographies, and business models.

How It Impacts the Valuation Approach?

1. Cash Flows Under Pressure

   One of the most visible effects of geopolitical tension is uncertainty around future maintainable profits and cash flows. Global conflicts often lead to sharp movements in cost structure, pricing and viability of doing business in a specific territory. Businesses dependent on these geopolitical hit sectors may experience higher operating costs, which directly affect margins and free cash flows.

   From a valuation perspective, this weakens earnings visibility. Projections that once appeared reasonable may suddenly require reassessment, leading to downward pressure on valuations.

2. Cost of Capital and Risk Perception

   Geopolitical uncertainty also changes how investors perceive risk. During periods of global stress, investors typically become more cautious and demand higher returns to compensate for uncertainty surrounding the operationality.

   For valuers, this translates into higher discount rates and more conservative risk assumptions. Even without a visible decline in business performance, an increase in perceived risk can materially reduce the valuation, especially for businesses where achieving the desired cash flows poses a material risk.

3. Market Volatility and Valuation Multiples

   Financial markets often react to geopolitical events faster than business fundamentals change. Export-oriented and globally exposed companies may see sharp movements in share prices and valuation multiples even before their financials are affected.

   For valuers applying the Market Approach, this creates a challenge. Comparable company multiples becomes less relevant during such periods and the available benchmarks may reflect short term sentiments rather than long term sustainable value, requiring careful judgments to avoid over / under valuation of the business.

What Sanity Checks Should a Valuer Perform?

Before finalizing a valuation, it becomes important to pause and reassess assumptions through a geopolitical lens. Some practical checks include:

• Understanding how much revenue or cost base is dependent on overseas markets;
• Assessing whether the increased costs can be recovered in other means or it’ll shrink down the profits;
• If multiples are taken, assessing whether the comparable transactions were undertaken in a similar kind of geopolitical situations or not;
• Assessing the adjustments required in multiples and your company’s sustainable operational benchmarks (revenue / EBITDA etc.)

Does the Valuation Approach Need to Change?

Geopolitical uncertainty can also influence the choice of valuation approach. The Income Approach may require more conservative assumptions and scenario analysis when future cash flows become less predictable. The Market Approach may become less reliable during volatile periods, as historical benchmarks may no longer reflect current realities. In situations where long-term business stability is threatened, the Asset Approach may gain relevance.

Conclusion: Geopolitics Is No Longer Background Noise

Geopolitical tensions have moved from the background to the forefront of valuation decisions. Pricing pressures, tariff disputes, supply chain disruptions, and shifting risk perceptions directly influence cash flows, discount rates, multiples and valuation outcomes.

For valuation professionals, assessing geopolitical risk in a valuation exercise is not about pessimism, it is more about realism. Valuations that recognise uncertainty and take it into consideration accordingly are far more reliable than those that ignore it.

• Background of the Investment Structure
  • Tiger Global set up three Mauritius-based investment vehicles: Tiger Global International II, III, and IV Holdings. They held valid Mauritius TRCs, which historically provided strong treaty protection under the India–Mauritius DTAA.
  • These Mauritius entities held shares in Flipkart Singapore, the Singapore-based parent of Flipkart India.
  • Flipkart Singapore derived substantial value from business operations and assets in India.
  • In 2018, Walmart acquired a majority stake in Flipkart. As part of this deal, the Tiger Global Mauritius entities sold their shares in Flipkart Singapore to a Luxembourg entity, Fit Holdings S.à r.l. Tiger Global claimed that since the shares were acquired before 1 April 2017, they were protected by the grandfathering clause in Article 13 of the India–Mauritius treaty and gains were taxable only in Mauritius, not in India.
• Claim of Income-tax Department

  The Indian Revenue challenged the exemption by arguing:

  • Lack of Commercial Substance - The Mauritius entities were shell or conduit entities controlled by Tiger Global’s U.S. management.
  • The structure was allegedly created mainly to obtain treaty benefits and avoid Indian capital gains tax.
  • Indirect Transfer - Since Flipkart Singapore derived significant value from assets in India, the share sale represented an indirect transfer of Indian assets, taxable under section 9.

  The Income Tax department therefore raised tax demands and rejected Tiger Global’s request for a nil withholding certificate.

• Proceedings Before AAR, High Court & Supreme Court
  1. AAR (Authority for Advance Rulings) – 2020 - AAR refused to admit the application under section 245R(2). Held the structure was prima facie designed for tax avoidance, making the gains taxable in India.
  2. Delhi High Court – 2024

     The HC reversed AAR and granted relief, stating:

     • Mauritius TRC must be respected.
     • Investment was bona fide and grandfathered.
     • AAR incorrectly applied anti-avoidance principles at the admission stage.
  3. Supreme Court – 2026

     The Supreme Court overturned the Delhi HC and applied “substance over form” test:

     • Control & Decision-Making - Real control was not in Mauritius but in the U.S.
     • No Genuine Business Presence in Mauritius - The entities acted mainly as pass-through investment vehicles, without employees or independent business activity.
     • TRC Is Not a Shield - TRC does not prevent tax authorities from investigating treaty abuse.
     • Treaty Abuse & GAAR Principles Apply - The structure was found to be primarily designed to take advantage of the India–Mauritius treaty. The Apex Court reiterated that GAAR applies to tax benefits claimed on or after 1 April 2017, even if the investment was made earlier.
• Implications for Future Tax Structuring

  The ruling significantly reshapes the playbook for foreign investors structuring India bound investments.

  • TRCs No Longer Provide Strong Comfort - TRCs are now treated as a necessary but insufficient condition for claiming Treaty benefits.
  • Greater Scrutiny of Mauritius, Singapore, and Similar Jurisdictions - The verdict will likely result in higher scrutiny of investments routed through treaty jurisdictions lacking real operations
  • Exit Structures Will Require Genuine Commercial Considerations - Investors can no longer rely on old grandfathering protections purely on the basis of dates; substance will prevail.
  • Offshore Funds Must Rethink India Strategies - PE, VC funds, FPIs trading derivatives, and FDI investors using holding companies may face tax leakage, altering their expected IRR.
• Commercial Substance Checklist for future structuring
  • Mind & Management / Decision Making - Majority of board meetings held in the SPV’s jurisdiction; critical resolutions debated and approved locally.
  • People / Functions / Premises - Full time employees performing core functions. Leased office with access rights and utilities in SPV jurisdiction.
  • Capital at Risk & Funding - Evidence of source of funds and banking in SPV jurisdiction; no circular funding/round tripping.
  • Real Activities / Ongoing Operations. Documented commercial rationale for using Mauritius/Singapore.
  • Contracts & Counterparties - Key contracts signed by resident signatories; show negotiation trail and governing law chosen for commercial reasons.