The Taxation and Other Laws (Amendment) Bill, 2026, circulated among members of Parliament, proposes substantially relaxed eligibility conditions for an Eligible Investment Fund (EIF) managed from India to avail tax exemption on its global income, according to PTI. Offshore funds would no longer need to meet the minimum investor threshold of 25 members, the maximum 10 per cent participation interest for a single investor, the restriction on investing more than 25 per cent of the corpus in a single entity, the restriction on investments in associate entities, or the minimum monthly average corpus requirement of Rs 100 crore.
Offshore fund rules: what changes
| Condition | Current exemption requirement | Proposed under Bill |
|---|---|---|
| Minimum investors | 25 members | Removed |
| Single investor cap | 10 per cent participation interest | Removed |
| Single-entity exposure | 25 per cent of corpus | Removed |
| Associate-entity investment | Restriction | Removed |
| Minimum monthly average corpus | Rs 100 crore | Removed |
The bill, which Finance Minister Nirmala Sitharaman is expected to introduce in the Lok Sabha soon, also seeks to remove the separate exemption conditions for funds operating from the International Financial Services Centre (IFSC). PTI reported that this would eliminate existing ambiguity between IFSC and non-IFSC offshore funds and introduce a uniform eligibility framework, ensuring the same conditions apply to all eligible investment funds managed from India.
Expert reaction
"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 relaxation removes five compliance conditions that previously applied to offshore funds seeking tax exemption on global income. For CFOs and treasury professionals tracking capital flows into emerging markets, the uniform eligibility framework reduces the complexity of structuring funds through IFSC versus onshore Indian locations, according to the PTI report.
Replacing the June 5 ordinance on G-Sec FPIs
The bill also seeks to replace the Ordinance promulgated on June 5, which provided tax exemption on income from interest and capital gains made by Foreign Portfolio Investors (FPIs) from investments in Government securities (G-Secs). The ordinance was promulgated to attract foreign capital to ease pressure on the depreciating rupee due to the West Asia crisis, the report said.
The statement of objects and reasons of the bill said 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 prevailing global conditions. "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," the statement said.
Government steps to attract foreign capital
Finance Minister Sitharaman had said in June that the measures announced by the Reserve Bank of India (RBI) and the government on boosting foreign fund inflows were the "first step" to bring back foreign capital, and indicated more steps could be in the offing. "We recognise, we need more foreign capital to come in," she said.
On June 5, the government expanded the list of specified securities under the Fully Accessible Route (FAR) to include new issuances in G-Secs, reducing the compliance burden for foreign investors in government debt. On the same day, the RBI allowed banks to access its swap facility for Foreign Currency Non-Resident (Bank) (FCNR-B) deposits with maturities ranging from 3-5 years until September 30, PTI reported. The facility lets banks swap US dollar deposits with the RBI and manage currency risk — a direct tool for treasury desks hedging dollar-rupee exposure.
For finance executives, the cumulative effect of the bill is a lower compliance cost for India-domiciled fund vehicles and a clearer tax path for non-resident fund managers. The removal of the 25 per cent single-entity exposure limit may also allow offshore funds to take concentrated positions in Indian debt and equity without forfeiting tax neutrality, while the FCNR-B swap window provides a channel for banks to swap US dollar deposits with the RBI and manage currency risks during periods of rupee volatility.
Sources:
