Government proposes tax relaxations for offshore funds and foreign investors
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The government has proposed significant tax relaxations for offshore funds managed from India and several categories of foreign companies as part of the Taxation and Other Laws (Amendment) Bill, 2026.
The move is aimed at promoting fund management activity, attracting foreign investment and providing greater tax certainty.
The Bill, which has been circulated among Members of Parliament and is expected to be introduced this week, proposes to remove eight of the 13 eligibility conditions that offshore funds currently need to meet to claim tax exemption under the Income-tax Act.
Among the conditions proposed to be removed are the minimum requirement of 25 investors, the cap of 10 per cent participation by a single investor, the restriction on investing more than 25 per cent of the corpus in a single entity, restrictions on investments in associate entities and the requirement to maintain a minimum monthly average corpus of Rs 100 crore.
Under the revised framework, offshore funds will be required to meet only five conditions, including not being a resident of India or controlling any business in India. Investment by Indian residents in such funds must not exceed 5 per cent of the corpus as on April 1 and October 1 of the relevant tax year.
The Bill also proposes extending the tax exemption available to foreign companies supplying capital goods, equipment or tooling for electronics contract manufacturing by 10 years, allowing benefits until 2040-41.
A new 15-year tax holiday until March 31, 2041 has also been proposed for specified foreign mining companies, sightholders, brokers, aggregators and tender or auction entities on income earned from the sale of rough diamonds in a notified special zone in India.
The proposed legislation seeks to replace the Income-tax (Amendment) Ordinance promulgated on June 5, which exempted foreign portfolio investors from capital gains and withholding taxes on investments in government securities.
The Bill further proposes tax exemptions for foreign companies storing and selling electronic components through customs bonded areas for supply to Indian contract electronics manufacturers. It also expands tax benefits for data centres by recognising both owned and leased facilities and removing the requirement for a separate central government notification for foreign companies procuring data centre services from specified facilities in India.