Govt proposes to ease tax relief conditions for offshore funds

To strengthen India’s position as a global fund management hub, the Government has proposed to substantially relax the eligibility conditions for an Eligible Investment Fund (EIF) managed from India to avail tax exemption on its global income.

As per the Taxation and Other Laws (Amendment) Bill, 2026, to avail tax exemption on global income, offshore funds would no longer be required to satisfy the conditions like minimum investor threshold of 25 members, maximum 10 per cent participation interest for a single investor, restriction on investing more than 25 per cent of the corpus in a single entity, restriction on investments in associate entities and minimum monthly average corpus requirement of Rs 100 crore.

The Bill, which has been circulated by the Government among the members of Parliament, is expected to be introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha soon.

The proposed amendments in the Bill also seek to remove separate exemption conditions for funds operating from the International Financial Services Centre (IFSC).

This would eliminate the existing ambiguity between IFSC and non-IFSC offshore funds, while introducing a uniform eligibility framework, ensuring that the same conditions apply to all eligible investment funds managed from India. “These proposed changes are expected to significantly enhance the attractiveness of India’s onshore fund management ecosystem for offshore funds and facilitate greater relocation of offshore fund management activities to India,” said Abheet Sachdeva, Partner- M&A Tax, Nangia Global.

The Bill also seeks to replace the Ordinance promulgated on June 5, which provided tax exemption to income from interest and capital gains made by FPIs from investments in G-Secs.

The Ordinance was promulgated to attract foreign capital to ease pressure on the depreciating rupee due to the West Asia crisis.

The statement of objects and reasons of the Bill said that the Ordinance was promulgated with the objective of mitigating the impact of external economic shocks, ensuring stability in the domestic economy and supporting key sectors affected by the prevailing global conditions by amending certain provisions of the Act.

“Subsequent policy assessment in view of representations received from stakeholders after the enactment of the Finance Act, 2026 has indicated that, while the objective sought to be achieved through the Ordinance continues to remain relevant, additional taxation measures are necessary to comprehensively achieve the same objective.

“Further, having regard to the continuing global developments and the need for a timely and coherent response, it is considered appropriate to incorporate these measures in the present Bill itself,” it said.

According to Sachdeva, the proposed changes are expected to significantly enhance the attractiveness of India’s onshore fund management ecosystem for offshore funds, and facilitate greater relocation of offshore fund management activities to India.

Finance Minister Nirmala Sitharaman had in June said the measures announced by the RBI and Government on boosting foreign fund inflows is the “first step” to bring back foreign capital and indicated that more steps could be in the offing.

“We recognise, we need more foreign capital to come in,” Sitharaman had said.

To reduce compliance burden for foreign investors in Government securities (G-Secs), the Government had on June 5 expanded the list of specified securities under the Fully Accessible Route (FAR) to also include new issuances in G-Secs.

The RBI on June 5 had allowed banks to access the RBI’s swap facility for Foreign Currency Non-Resident (Bank) (FCNR-B) deposits with maturities ranging from 3-5 years till September 30. The facility would allow banks to swap US dollar deposits with the RBI and manage currency risks.

Also, to shore up foreign capital inflows, include a concessional forex swap facility to encourage PSUs to raise external commercial borrowings (ECBs) until September 30.

These schemes have together netted USD 40.81 billion till July 31.

India’s forex reserves grew USD 6.118 billion to USD 682.354 billion during the week ended July 24 as foreign inflows started to pour in.

Grant Thornton Bharat Partner-Tax, Richa Sawhney, said the Bill signals a calibrated shift from short-term relief to longer-term competitiveness.

While the Ordinance addressed immediate concerns arising from global economic developments, the Government has now supplemented those measures with additional reforms following stakeholder consultations. The result is a broader package designed to provide greater tax certainty and reinforce India’s economic resilience, she said.

“The liberalisation of the fund management regime, incentives for electronics supply chains, facilitation measures for data centres and diamond trading and tax relief for foreign investors in Government securities collectively point towards a policy objective of attracting global capital and business activity into India. Collectively, the amendments reflect a clear emphasis on investment facilitation, supply-chain resilience and long-term tax certainty,” Sawhney said.

The statement of objects and reasons of the Bill said that the Ordinance was necessitated as in recent months, on account of evolving geopolitical developments and related disruptions in international trade and supply chains, the global economic landscape has undergone considerable uncertainty.

“Hence, a need has arisen to undertake certain immediate taxation measures with a view to mitigate the impact of external economic shocks, ensure stability in the domestic economy and support key sectors affected by the prevailing global conditions, which require certain amendments to the provisions of the said Act to be carried out on an urgent basis in the larger public interest,” it said.