New Delhi: The Central Government has proposed a wide-ranging set of tax reforms aimed at strengthening India’s investment ecosystem, promoting fund management activities, and accelerating growth in strategic sectors such as electronics manufacturing, mining, and digital infrastructure. The proposed measures, included in the Taxation and Other Laws (Amendment) Bill, 2026, seek to simplify tax rules, enhance investor confidence, and make India a more attractive destination for global capital.
The Bill, which has been circulated among Members of Parliament and is expected to be introduced during the ongoing Monsoon Session, proposes significant relaxations in tax exemption conditions for Eligible Investment Funds (EIFs), commonly known as offshore funds managed from India.
One of the most notable proposals is the removal of eight out of the existing thirteen eligibility conditions that offshore funds must satisfy to ensure their activities are not treated as business income in India. Under the proposed changes, offshore funds will no longer be required to maintain a minimum of 25 investors, limit any single investor’s participation to 10 percent, restrict investments in a single entity to 25 percent of the corpus, avoid investments in associate entities, or maintain a minimum monthly average corpus of Rs 100 crore.
Instead, offshore funds would only need to comply with five broad conditions. These include remaining non-residents of India, ensuring they do not directly or indirectly control or manage any business in India, and limiting investments made by Indian residents to not more than five percent of the fund’s corpus as measured on April 1 and October 1 of the relevant financial year.
The proposed amendments are expected to create a uniform regulatory framework for offshore funds operating through India’s International Financial Services Centre (IFSC), providing greater flexibility to global asset managers.
Industry experts have welcomed the reforms, describing them as an important step towards aligning India’s fund management regulations with international standards. According to tax professionals, the removal of outdated safe harbour conditions will improve India’s competitiveness as a preferred destination for managing both India-focused and global investment funds while encouraging fund management operations to shift to the country.
The Bill also expands tax incentives for India’s rapidly growing electronics manufacturing sector. Earlier this year, the Union Budget had extended a five-year tax exemption for contract manufacturing until the financial year 2030-31. The latest proposal seeks to extend this benefit by an additional ten years, allowing eligible foreign companies supplying capital goods, equipment, or tooling to Indian electronics contract manufacturers to claim tax exemptions until 2040-41.
In another significant move, the government has proposed a 15-year tax holiday, valid until March 31, 2041, for specified foreign companies engaged in the sale of rough diamonds through notified special zones in India. The benefit would apply to mining companies, sightholders, brokers, aggregators, and auction or tender entities dealing in rough diamonds, with the objective of strengthening India’s position in the global diamond trade.
The proposed legislation also seeks to replace the Income-tax (Amendment) Ordinance, 2026, promulgated on June 5, which granted complete exemption to foreign portfolio investors (FPIs) from capital gains tax and withholding tax on investments in Indian government securities.
The government had introduced the Ordinance amid concerns over pressure on the Indian rupee and sustained foreign capital outflows. In the statement of objects and reasons accompanying the Bill, the government stated that while the original objective of addressing external economic shocks remains relevant, additional taxation measures are now considered necessary following representations received from stakeholders after the enactment of the Finance Act, 2026.
The government further noted that continued global economic uncertainties require a timely and coordinated policy response, making it appropriate to incorporate these provisions into the proposed legislation.
Finance Minister Nirmala Sitharaman had earlier indicated that the measures announced jointly by the Government and the Reserve Bank of India to encourage foreign capital inflows were only the “first step” towards attracting greater international investment into the country, suggesting that further reforms could follow.
The Bill also proposes fresh tax exemptions for foreign companies involved in the storage and sale of electronic components through customs bonded warehouses, provided such components are supplied to Indian contract electronics manufacturers. The move is expected to strengthen India’s electronics supply chain and further support the government’s manufacturing ambitions.
In addition, the legislation introduces tax relief measures for the data centre industry. It proposes expanding the definition of an eligible data centre to include facilities operated through both ownership and leasing arrangements. It also removes the requirement for a separate Central Government notification for foreign companies procuring services from specified data centres in India.
Industry experts believe these changes will significantly reduce procedural hurdles, better reflect prevailing commercial practices, improve ease of doing business, and encourage greater domestic and foreign investment in India’s expanding digital infrastructure sector.
