India Overhauls Offshore Fund Tax to Boost Local Management

India’s government is poised to introduce a comprehensive tax framework aimed at significantly enhancing the nation’s fund management system. This new structure, expected through the Taxation and Other Laws (Amendment) Bill, 2026, seeks to provide tax exemptions on global income for eligible investment funds while rationalizing their eligibility conditions.

The Bill, slated for presentation in Parliament this week, will supersede an earlier Ordinance that exempted foreign institutional investors from withholding tax on government securities. Its broader objectives include increasing India’s appeal to foreign investors and stimulating domestic manufacturing.

Rationalizing Fund Manager Eligibility

A core element of the proposed amendments involves rationalizing the conditions for eligible investment fund managers. This move is designed to offer greater tax certainty and actively foster fund management activities within India’s borders.

Offshore funds will no longer be required to satisfy several existing conditions to qualify as eligible investment funds. These include a minimum investor threshold of 25 members and a maximum of 10% interest held by any single investor.

Furthermore, the amendments remove the aggregate participation cap of 50% for 10 or fewer investors. Restrictions on investing more than 25% of the corpus in a single entity and limitations on investments in associate entities are also being eliminated.

The requirement for a minimum monthly average corpus of Rs 100 crore will also be done away with. These changes simplify the landscape for funds seeking to operate from India.

Boosting Onshore Fund Management

These proposed changes are expected to significantly boost the attractiveness of India’s onshore fund management ecosystem for offshore funds, according to Abheet Sachdeva, Partner- M&A Tax at Nangia Global. He stated this facilitation would lead to a greater shift of offshore fund management activities to India.

Additionally, the amendments will eliminate specific provisions that allowed the government to establish separate exemption conditions for funds operating from International Financial Services Centres (IFSC). This creates a uniform eligibility framework for all eligible investment funds managed from India, thereby resolving existing ambiguities.