Offshore share transfers involving Indian asset exposure remain central to global private equity exits, strategic M&A, and cross-border group restructurings in 2026. India continues to attract sustained foreign investment across technology, infrastructure, manufacturing, energy transition, digital platforms, and financial services. Most of these investments are structured through offshore holding vehicles. As a result, exits frequently take the form of share transfers at the foreign holding company level rather than direct transfers of Indian shares.
However, the structuring environment today is fundamentally different from that of a decade ago. The indirect transfer regime is settled law. The General Anti-Avoidance Rules (GAAR) are operational and applied. Treaty benefits are subject to the Principal Purpose Test (PPT). Regulatory authorities are data-enabled and internationally coordinated. The question is no longer whether offshore share sales are viable — they are — but rather how they must be structured to withstand scrutiny.
In 2026, defensibility is the organizing principle. Structures that align commercial substance, valuation rigor, treaty eligibility, and regulatory compliance continue to succeed. Structures that rely on form without substance do not.
The Indirect Transfer Framework: The Starting Point of Every Analysis
Any offshore share sale involving Indian exposure must begin with the indirect transfer provisions under Section 9(1)(i) of the Income-tax Act. These provisions deem gains arising from transfer of shares of a foreign company to be taxable in India if those shares derive “substantial value” from assets located in India.
The substantial value test hinges on a 50% threshold. If, on the specified valuation date, at least half of the foreign entity’s value is derived from Indian assets, the gains attributable to Indian assets may be taxed in India. The rule applies irrespective of the residence of the buyer or seller and irrespective of whether the transfer takes place entirely offshore.
The computational mechanics are governed by Rule 11UB, which prescribes how fair market value (FMV) of global assets and Indian assets must be determined. The gain taxable in India is proportionately attributed to the value of Indian assets relative to global value.
In practice, valuation has become the decisive battleground. For asset-heavy businesses, the exercise may be relatively straightforward. For digital businesses, IP-driven enterprises, platform companies, or groups with centralized intangibles, valuation becomes far more complex. Indian user bases, data pools, and revenue streams can dramatically influence enterprise value, sometimes pushing structures across the 50% threshold unexpectedly.
By 2026, it is clear that valuation cannot be an afterthought. Independent valuation reports, methodological justification, sensitivity analyses, and board-level approval of valuation assumptions are essential components of a defensible exit.
GAAR and the Shift from Technical Compliance to Substantive Integrity
While the indirect transfer provisions focus on quantitative thresholds, GAAR introduces a qualitative overlay. Even where a structure technically navigates the 50% threshold or relies on treaty protection, GAAR permits authorities to deny tax benefits if the arrangement’s main purpose is to obtain a tax advantage and it lacks commercial substance.
The practical consequence is profound. Offshore holding companies must demonstrate real economic presence and genuine decision-making authority. This includes functional boards, strategic oversight, risk assumption, and operational coherence. Circular flows of funds, pre-exit restructurings with limited commercial rationale, or “conduit” entities with minimal activity are highly vulnerable.
Importantly, GAAR operates independently of the indirect transfer provisions. A structure may fall outside the substantial value threshold yet still face GAAR scrutiny if its primary objective appears tax-driven. Conversely, a structure that crosses the threshold but demonstrates robust commercial rationale and treaty eligibility may be better positioned to defend itself.
The 2026 enforcement environment reflects a mature approach: authorities are less focused on headline jurisdiction choices and more focused on whether the holding entity performs a genuine strategic function within the group.
Treaty Protection in the Post-PPT Era
Tax treaties remain relevant, but their utility has narrowed. Following the implementation of the Multilateral Instrument, most Indian treaties incorporate the Principal Purpose Test. Under PPT, treaty benefits may be denied if obtaining that benefit was one of the principal purposes of the arrangement, unless granting the benefit aligns with the object and purpose of the treaty.
This standard is inherently fact-driven. It requires examining the commercial logic of the structure, the timing of incorporation, the business functions performed in the treaty jurisdiction, and the broader investment strategy.
Limitation of Benefits (LOB) clauses in certain treaties further require demonstrable economic substance, often through minimum expenditure thresholds or active business tests. The era of passive holding companies claiming automatic treaty relief has definitively ended.
In practical terms, treaty reliance in 2026 demands contemporaneous documentation of business purpose. Why was the jurisdiction selected? Does it serve as a regional hub? Are management decisions genuinely taken there? Does the entity employ personnel or maintain operational infrastructure? These questions increasingly define the success or failure of treaty claims.
Structuring Models That Continue to Work
Despite heightened scrutiny, offshore structuring remains entirely viable when properly designed.
A straightforward offshore holding company exit continues to be effective where Indian assets do not constitute 50% or more of global value. In such cases, rigorous valuation support is critical, but the transaction may proceed without Indian tax exposure under domestic law.
Where Indian assets cross the threshold, treaty-protected jurisdictions remain workable — provided substance is real. Singapore continues to be used effectively when it functions as a genuine regional management center with active board oversight and operational depth. The UAE has emerged as a credible holding platform, particularly for groups with Middle East operations, though residency and management presence must be demonstrable. European jurisdictions such as the Netherlands are effective when integrated into broader European commercial strategies rather than India-only conduits.
The unifying theme across successful structures is coherence. The holding company must make sense within the group’s business architecture. If it exists solely to hold Indian shares and is activated only at exit, risk escalates significantly.
India’s International Financial Services Centre (IFSC) at GIFT City has also gained attention. While not a universal solution, IFSC-based fund and platform structures can align regulatory incentives with India-focused strategies. For certain investors, this creates a policy-aligned and potentially efficient framework, particularly where long-term India exposure is contemplated.
Regulatory Considerations Beyond Tax
Tax analysis alone is insufficient. Offshore share transfers can trigger regulatory consequences under foreign exchange, competition, and sector-specific laws.
Under India’s foreign exchange regime, indirect transfers may carry reporting obligations and downstream investment implications. Pricing guidelines, sectoral caps, and foreign investment conditions must be assessed even when the transaction occurs offshore.
Competition law has also assumed greater prominence. The Competition Commission of India may require notification if asset or turnover thresholds are met, even for global deals where Indian assets are part of a broader transaction. In 2026, CCI review of cross-border mergers with Indian nexus has become more routine, making early regulatory mapping essential to transaction timelines.
Sensitive sectors such as telecom, insurance, fintech, defence, and critical infrastructure often involve additional regulatory layers. Indirect transfers do not insulate parties from sectoral approval requirements.
Successful structuring therefore integrates tax and regulatory strategy from the outset, rather than addressing compliance as a closing-stage formality.
Withholding Exposure and Transaction Mechanics
Section 195 of the Income-tax Act obligates withholding on payments chargeable to tax in India. In offshore share transfers where Indian tax exposure is arguable, buyers frequently confront uncertainty regarding withholding obligations.
To manage this risk, transactions increasingly incorporate escrow arrangements, indemnity protections, and gross-up clauses. In high-value deals, tax insurance products are sometimes deployed to ring-fence potential exposure, though insurers demand robust structural and valuation analysis before underwriting risk.
A well-structured transaction anticipates withholding questions early, aligns contractual risk allocation accordingly, and documents the legal basis for the tax position taken.
Valuation: The Decisive Variable in 2026
If one factor defines indirect transfer outcomes, it is valuation. Authorities are sophisticated in challenging methodology, assumptions, and allocation models. For multinational groups, attributing enterprise value between Indian and non-Indian assets requires technical precision.
Discounted cash flow models must be grounded in defensible projections. Treatment of intangibles must reflect economic reality. Inter-company arrangements affecting profit allocation require consistency. Currency conversion dates and valuation timing must align with statutory requirements.
Given the growing importance of digital and IP-led businesses, Indian market contribution can materially influence global value. Periodic value testing prior to exit is increasingly advisable, particularly in high-growth sectors where Indian operations scale rapidly.
A credible valuation narrative — supported by independent experts and embedded in board documentation — significantly reduces litigation risk.
Planning for Exit at the Time of Entry
The most efficient exits in 2026 share a common feature: structuring decisions were made at the time of initial investment. Jurisdiction selection, governance design, capital structuring, and substance build-out were approached with exit scenarios in mind.
Investors who defer structural evaluation until exit often find themselves constrained by thresholds, treaty limitations, or regulatory exposure. By contrast, investors who establish genuine regional platforms, maintain active governance in the holding jurisdiction, and periodically review value attribution are better positioned to execute clean offshore exits.
Exit planning today is not merely about tax optimization. It is about building a structure that can withstand multi-jurisdictional scrutiny over the life of the investment.
Emerging Trends Shaping the 2026 Environment
Several trends define the current structuring landscape. First, global information exchange and tax transparency initiatives have significantly reduced opacity. Indian authorities have access to cross-border financial data and coordinate with foreign regulators more actively than before.
Second, digital economy valuations have increased the likelihood that Indian exposure crosses the substantial value threshold. Businesses with large Indian user bases or revenue streams must monitor valuation dynamics carefully.
Third, Middle Eastern holding platforms have grown in prominence as regional investment hubs. Their effectiveness, however, depends on evolving treaty interpretation and demonstrable management presence.
Finally, there is increased interest in obtaining advance clarity through formal or informal mechanisms, though timing constraints often limit this option in fast-paced transactions.
Offshore share sales involving Indian asset exposure remain entirely viable in 2026. What has changed is the standard of scrutiny. Technical compliance with statutory thresholds is no longer sufficient. Structures must demonstrate commercial coherence, economic substance, valuation integrity, and regulatory alignment.
The core lessons are clear. Substance prevails over form. Treaty protection is conditional, not automatic. Valuation must be rigorous and contemporaneous. Regulatory overlays must be addressed holistically. Most importantly, effective structuring begins at entry, not at exit.
India’s growth trajectory ensures that offshore exits will continue to be central to global investment cycles. For investors and multinational groups, the path to a successful exit lies not in aggressive arbitrage but in disciplined architecture — structures built to endure scrutiny and grounded in genuine commercial reality.
In that disciplined approach lies what truly works in 2026.