India Proposes Tax Relief for Offshore Funds and Electronics Manufacturing
The Indian government has proposed a set of tax measures aimed at strengthening the country’s position as a destination for fund management and electronics manufacturing. The proposals, contained in the Taxation and Other Laws (Amendment) Bill, 2026, seek to ease eligibility conditions for offshore funds managed from India and extend long-term tax exemptions for foreign companies involved in contract manufacturing of electronic goods. Officials have framed the changes as steps to promote fund management activity, provide greater tax certainty, and support key industrial sectors.
Easing Rules for Offshore Funds
One of the central elements of the proposal concerns Eligible Investment Funds, also referred to as offshore funds managed from India. Under existing rules, such funds must satisfy a detailed list of conditions to ensure that their activities do not create a taxable business connection in India and thereby qualify for exemption on global income.
The government now proposes to remove a majority of these conditions. Requirements that would no longer apply include a minimum investor threshold of 25 members, a maximum 10 percent participation interest for any single investor, an aggregate participation limit for smaller groups of investors, a restriction on investing more than 25 percent of the corpus in a single entity, limits on investments in associate entities, and a minimum monthly average corpus of Rs 100 crore.
The remaining conditions are more limited and focus on core safeguards. These include the fund not being a resident of India, not controlling or managing any business in India, and restrictions on the share of investment by Indian residents. The changes are intended to align the Indian regime more closely with global fund structures and reduce compliance complexity for managers seeking to operate from India, including from the International Financial Services Centre.
Industry observers have noted that the earlier set of conditions often proved difficult for many international fund structures to meet. By simplifying the framework while retaining essential residency and control tests, the proposal aims to make India a more competitive location for both India-focused and global investment strategies.
Extending Tax Benefits for Electronics Contract Manufacturing
A second major proposal addresses the electronics manufacturing sector. In the Budget earlier this year, the government introduced a tax exemption for foreign companies that provide capital goods, equipment, or tooling to Indian contract manufacturers engaged in producing electronic goods. The exemption applied where the Indian manufacturer operates in a customs-bonded area and the foreign company retains ownership of the equipment. The benefit was originally available until the tax year 2030-31.
The new bill proposes to extend this exemption by ten years, taking it through to 2040-41. The government has also clarified the list of “specified electronic goods” covered by the relief. These include mobile phones, laptops, tablets, servers, sub-assemblies, hearables, wearables, and related accessories.
In addition, a new exemption is proposed for income earned by foreign companies from storing electronic components in customs-bonded warehouses in India and supplying those components to Indian contract manufacturers of the same specified goods. This relief would likewise run until 2040-41. The measure is designed to support modern global supply-chain arrangements in which multinational firms retain ownership of components while local partners undertake assembly and manufacturing.
Policy Context and Objectives
Both sets of proposals form part of a broader effort to attract long-term foreign capital and deepen domestic manufacturing capabilities. For the fund management industry, the simplifications are expected to encourage more offshore funds to locate management activities in India, supporting the development of the country’s financial services ecosystem.
In electronics, the extended and expanded exemptions address concerns that ownership of high-value machinery or inventory by foreign firms could be interpreted as creating a taxable presence in India. By providing explicit, long-duration relief for contract manufacturing models operating in bonded facilities, the government aims to give global manufacturers greater certainty when scaling production in the country. The changes are particularly relevant to companies that supply equipment and components to Indian partners producing smartphones, computers, and wearable devices.
The bill also contains related measures in other areas, including tax treatment for certain activities linked to data centres and rough diamond trading, reflecting a wider effort to refine incentives across selected sectors. The proposals build on an earlier ordinance that addressed specific investment categories and are now being taken forward through parliamentary legislation.
Implications for Industry and Investment
For offshore fund managers, the reduced list of conditions should lower barriers to establishing or expanding operations managed from India. Greater flexibility around investor composition, corpus size, and investment concentration is expected to make the regime more practical for a wider range of fund strategies.
For electronics manufacturers and their global partners, the ten-year extension and the additional warehouse-related exemption offer longer planning horizons. Contract manufacturing arrangements that rely on foreign-owned equipment and component stock can proceed with clearer tax treatment, supporting India’s ambitions to expand its share of global electronics production and exports.
The measures still require parliamentary approval before they take effect. Once enacted, they will form part of the evolving framework of tax incentives designed to balance revenue considerations with the goal of attracting mobile capital and manufacturing investment. By focusing on both fund management and high-value electronics supply chains, the government is signalling its intention to use targeted tax certainty as a tool for economic competitiveness in these strategic areas.
Read more – gralphamedia.com
