Taxation laws amendment bill: Government proposes simplified exemption framework for offshore funds

New Delhi: Finance Minister Nirmala Sitharaman is likely to introduce a bill in Parliament soon to "significantly simplify" the framework governing offshore investment funds by relaxing the eligibility conditions for such funds managed from India to avail tax exemption on their global income.

The Taxation and Other Laws (Amendment) Bill, 2026, will replace the June 5 Ordinance that provided income tax exemption to income from interest and capital gains made by FPIs from investments in G-Secs.

The Bill also proposes a tax exemption for foreign companies undertaking the storage and sale of electronic components through customs bonded areas and supplying them to Indian manufacturers.


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The Bill also provides for a tax exemption till March 31, 2041, for eligible foreign entities engaged in the rough diamond trade, covering income from the sale of rough diamonds undertaken through notified special zones in India.

Through the Bill, 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, which is expected to strengthen India's position as a global fund management hub.

Amid the ongoing West Asia crisis, India has been making efforts to attract foreign inflow and to this end the government and the Reserve Bank of India, on June 5, announced a slew of measures, including the RBI's swap facility for FCNR(B) deposits and external commercial borrowings by PSUs, and tax exemption for FPI capital gains and interest income.

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Finance Minister Nirmala Sitharaman had in June said that the measures announced by the RBI and government on boosting foreign fund inflows is the "first step" to bring 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.

As per the amendments proposed in the Bill, 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.

AKM Global Managing Partner, Amit Maheshwari said, "By simplifying the eligibility framework for offshore investment funds, the amendment is expected to strengthen India's attractiveness as a fund management jurisdiction and further the Government's objective of promoting India as a competitive global investment hub."

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

According to the statement of objects and reasons of the Bill, additional taxation measures are necessary to comprehensively achieve the same objective as the Taxation Laws (Amendment) Ordinance.

"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.

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.

EY India Partner and Financial Services Tax Leader Tejas Desai said the amendments proposed in the Bill are one of the most consequential reforms for India's fund management ecosystem in recent years, as out of the original 13 conditions applicable to qualify as an eligible investment fund, only 5 remain.

"These changes should give the much-needed flexibility to fund managers and significantly enhance India's competitiveness as a fund management destination for both India-focused and global investment strategies," Desai added.

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.

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

"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.