India Overhauls Offshore Fund Taxation to Cement Global Management Hub Status

Strategic Relaxation of Eligibility Criteria

The Government of India is moving to eliminate several long-standing barriers for offshore funds seeking tax-exempt status on global income. According to the Taxation and Other Laws (Amendment) Bill, 2026, the administration plans to scrap the requirement for a minimum 25-member investor threshold. Additionally, the proposed law removes the 10% cap on individual investor participation and the 25% ceiling on investments within a single entity. The mandate for a minimum monthly average corpus of ₹100 crore and restrictions on associate entity investments are also slated for removal. These measures, expected to be introduced in the Lok Sabha by Finance Minister Nirmala Sitharaman, represent a shift toward making India a more competitive onshore management destination.

Unified Framework for Global Capital

A primary objective of the new Bill is the synchronization of tax standards between funds operating from the International Financial Services Centre (IFSC) and those based elsewhere in India. By discarding separate exemption conditions, the government intends to resolve existing regulatory ambiguity and create a level playing field. Abheet Sachdeva, Partner at Nangia Global, noted that these adjustments should simplify the relocation of fund management activities to India. The reform follows earlier comments from Minister Sitharaman indicating that initial capital-boosting measures were merely the first phase of a broader strategy to attract foreign investment.

From Crisis Management to Economic Resilience

The legislation serves as a permanent replacement for the June 5 Ordinance, which provided tax relief on interest and capital gains for Foreign Portfolio Investors (FPIs) in Government Securities (G-Secs). That emergency measure was originally triggered by the West Asia crisis to support the rupee against external shocks. While the Ordinance successfully stabilized the currency—contributing to a $40.81 billion net inflow by July 31 and pushing forex reserves to $682.354 billion by late July—the new Bill incorporates deeper reforms based on stakeholder feedback. Richa Sawhney of Grant Thornton Bharat highlighted that the bill transitions from temporary relief toward long-term tax certainty, covering not only fund management but also incentives for data centers, electronics supply chains, and diamond trading.

• Banks were granted access to an FCNR-B swap facility for 3-5 year maturities until September 30.
• A concessional forex swap facility was introduced to assist Public Sector Undertakings (PSUs) with external commercial borrowings.
• The list of securities under the Fully Accessible Route (FAR) has been expanded to include new G-Sec issuances.

Source: The Hindu — Economy