The Centre has now suggested a major reform of India’s tax regulations concerning offshore investment funds with the aim of making the country a more appealing place for global fund management and foreign capital.
The measures suggested in the Taxation and Other Laws (Amendment) Bill, 2026, greatly ease the eligibility criteria for Eligible Investment Funds (EIFs) which are managed from India. This action is part of the government’s wider strategy for aiming to establish India as a global fund management hub.
The Bill, which is expected to be presented in the Lok Sabha by the Finance Minister Nirmala Sitharaman, eliminates a number of the long-standing requirements that offshore funds had to satisfy in order to be entitled to tax exemptions on their global income.
Key changes proposed
If passed, offshore funds managed from India will no longer be required to:
Have at least 25 investors.
Limit any one investor’s holding to 10%.
Constrain investments in any one entity to 25% of the total fund corpus.
Do not invest in associate entities.
Make sure that the monthly corpus amounts to at least Rs 100 crore on average.
The government has likewise suggested getting rid of the separate tax exemption rules that apply to funds based at the International Financial Services Centre (IFSC), and instead introducing a single set of rules for all offshore funds administered from India.
Tax experts think that the changes might lead global asset managers to move a greater amount of their investment activities to India.
Abheet Sachdeva, who is a Partner–M&A Tax at Nangia Global, stated that the proposed reforms would greatly enhance the appeal of India’s onshore fund management ecosystem and would help in the relocation of offshore fund management activities to the country.
Tax relief for foreign investors
The Bill also aims at replacing the ordinance dated June 5, under which tax exemptions were granted to Foreign Portfolio Investors (FPIs) for the interest income and capital gains they earned from investments in government securities (G-Secs).
It was introduced with the aim of drawing in foreign capital in order to support the rupee while geopolitical tensions existed in West Asia.
The government’s Statement of Objects and Reasons stated that feedback from stakeholders after the Finance Act, 2026, had shown the need for further tax measures in order to enhance the effectiveness of the initial relief package; the government added that including these changes in the legislation would allow for a more timely and comprehensive reaction to the existing global economic uncertainties.
Part of a broader investment strategy
The proposed tax changes are part of a series of measures that were announced in June in order to increase foreign capital inflows.
This involves extending the Fully Accessible Route (FAR) by permitting new issuances of government securities to qualify, which in turn makes it easier for foreign investors to take part in India’s debt market.
Until 30 September, the Reserve Bank of India (RBI) permitted banks to use its swap facility concerning Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits having maturities of three to five years in order to help them manage their foreign exchange risk.
The government also set up a concessional foreign exchange swap facility in order to get the public sector undertakings (PSUs) to obtain external commercial borrowings (ECBs) up to September.
These measures collectively resulted in net foreign inflows of $40.81 billion by July 31, and India’s foreign exchange reserves increased by $6.12 billion to $682.35 billion during the week ending July 24.
Long-term policy shift
Richa Sawhney, who is a Partner–Tax at Grant Thornton Bharat, stated that the Bill shows a slow move from short-term policy support to a long-term strategy intended at enhancing India’s competitiveness as an investment destination.
She pointed out that, in addition to liberalising the rules on fund management, the proposed amendments also provide incentives for electronics supply chains, offer support for data centres and diamond trading, and give tax relief to foreign investors in government securities.
She says that the overall package is intended for the purpose of improving tax certainty, boosting supply-chain resilience, and drawing in global businesses and investment into India.
The government stated that the amendments were required due to ongoing geopolitical tensions and the disturbances of global trade and supply chains, and added that the measures are meant for the purpose of protecting domestic economic stability while at the same time supporting the key sectors which have been affected by external shocks.
