Tax revamp likely for Foreign Eligible Investment Funds

In a move that could significantly enhance the attractiveness of India’s fund management system for offshore funds, the government is likely to introduce a revamped tax framework that would enable such funds to avail tax exemption on their global income.

According to sources, this framework is likely to be introduced through the Taxation and Other Laws (Amendment) Bill, 2026 that will be tabled in Parliament this week. While the main objective of the Bill is to replace the Ordinance promulgated on June 5 to exempt foreign institutional investors from withholding tax on investments in government securities, sources said the Bill also includes more tax related amendments aimed to increase the attractiveness of India for foreign investors and boost domestic manufacturing.

To this end, the Bill is likely to propose to rationalising the conditions for eligible investment funds managers in order to provide tax certainty and promote fund management activity in the country.

Sources indicated that under the proposed amendments, offshore funds would no longer be required to satisfy certain conditions to be considered as an eligible investment fund. These include a minimum investor threshold of 25 members, maximum participation of 10% interest for a single investor, aggregate participation cap of 50% for 10 or fewer investors, restriction on investing more than 25% of the corpus in a single entity; restriction on investments in associate entities; and minimum monthly average corpus requirement of Rs 100 crore.

Abheet Sachdeva, Partner- M&A Tax, Nangia Global said 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.

“The proposed amendments also remove the specific enabling provision empowering the government to prescribe separate exemption conditions for funds operating from the International Financial Services Centre (IFSC),” he said, adding that this eliminates the existing ambiguity between IFSC and non-IFSC offshore funds by introducing a uniform eligibility framework, ensuring that the same conditions apply to all eligible investment funds managed from India.