Govt proposes easier tax regime to enhance global competitiveness

04 Aug 2026 Evaluate

The Government has proposed significant relaxations to the eligibility criteria for Eligible Investment Funds (EIFs) managed from India, aiming to strengthen the country's position as a global fund management hub. Under the proposed Taxation and Other Laws (Amendment) Bill, 2026, offshore funds seeking tax exemption on their global income would no longer be required to meet several existing conditions. These include maintaining a minimum of 25 investors, limiting a single investor's participation to 10%, restricting investments exceeding 25% of the fund corpus in a single entity, prohibiting investments in associate entities, and maintaining a minimum average monthly corpus of Rs 100 crore.

The Bill, which has been circulated among Members of Parliament, is expected to be introduced in the Lok Sabha by Nirmala Sitharaman soon. It also proposes to remove the separate exemption criteria applicable to funds operating from the International Financial Services Centre Authority (IFSC). This would eliminate the existing distinction between IFSC and non-IFSC offshore funds by introducing a uniform eligibility framework, ensuring that the same tax exemption conditions apply to all eligible investment funds managed from India.

Additionally, the Bill seeks to replace the Ordinance promulgated on June 5, which granted tax exemption on interest income and capital gains earned by Foreign Portfolio Investors (FPIs) from investments in Government Securities (G-Secs). The Ordinance was introduced to attract foreign capital amid pressure on the depreciating rupee arising from the West Asia crisis. According to the Statement of Objects and Reasons, the measure was aimed at mitigating the impact of external economic shocks, preserving domestic economic stability, and supporting key sectors affected by prevailing global conditions through amendments to the relevant tax provisions.

In June, Finance Minister Nirmala Sitharaman stated that the measures announced by the Government and the Reserve Bank of India (RBI) to boost foreign capital inflows were only the 'first step' toward attracting overseas investments, while indicating that additional initiatives could follow. She emphasized, 'We recognise, we need more foreign capital to come in.' To reduce the compliance burden for foreign investors in G-Secs, the Government expanded the list of securities eligible under the Fully Accessible Route (FAR) on June 5 to include all new issuances of G-Secs. On the same day, the RBI also permitted banks to access its swap facility for Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits with maturities ranging from three to five years until September 30. The facility enables banks to swap U.S. dollar deposits with the RBI, helping them manage foreign exchange risks more effectively.

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