India is on the brink of enacting significant tax reforms designed to attract greater foreign investment and bolster its onshore fund management sector. The government is expected to table the Taxation and Other Laws (Amendment) Bill, 2026, in Parliament this week, which includes provisions to exempt Foreign Eligible Investment Funds (EIFs) from tax on their global income.
This legislative initiative is poised to make India's fund management ecosystem considerably more appealing to offshore funds. Sources indicate that the Bill will rationalize the eligibility criteria for EIFs, providing much-needed tax certainty and fostering increased fund management activity within the country.
Simplified Eligibility for Offshore Funds
A key aspect of the proposed amendments involves removing several stringent conditions that offshore funds currently need to meet to qualify as eligible investment funds. These include:
- A minimum threshold of 25 investors.
- A cap of 10% interest for any single investor.
- An aggregate participation limit of 50% for 10 or fewer investors.
- A restriction on investing more than 25% of the corpus in a single entity.
- Prohibitions on investments in associate entities.
- A minimum monthly average corpus requirement of Rs 100 crore.
By eliminating these requirements, the government aims to streamline the process and reduce regulatory burdens for foreign investors.
Boosting India's Fund Management Ecosystem
Abheet Sachdeva, Partner- M&A Tax at Nangia Global, commented on the expected impact. He noted that these changes are anticipated to significantly enhance the attractiveness of India's onshore fund management ecosystem for offshore funds. Sachdeva added that the reforms would facilitate greater relocation of offshore fund management activities to India, harmonizing the framework for both International Financial Services Centre (IFSC) and non-IFSC offshore funds.
The Bill's primary objective is to replace an Ordinance promulgated on June 5, which exempted foreign institutional investors from withholding tax on investments in government securities. However, the inclusion of broader tax amendments underscores the government's strategic intent to boost domestic manufacturing and make India a more compelling destination for international capital.