The Indian government has drafted sweeping tax exemptions for offshore investment funds and extended the tax holiday for electronics contract manufacturers until FY 2040‑41. The measures aim to lure foreign capital and boost the sector’s global competitiveness.

Key Takeaways

  • 8 of 13 conditions removed for offshore funds
  • Contract manufacturing tax exemption extended by 10 years
  • New 15‑year tax holiday for specified foreign diamond sellers

Finance Minister Nirmala Sitharaman announced a comprehensive tax‑relief package for offshore funds and electronics contract manufacturing in the Budget 2026‑27. The proposals are part of the Taxation and Other Laws (Amendment) Bill, 2026, slated for parliamentary introduction this week.

Offshore funds will now need to satisfy only five conditions – non‑residency in India, no direct or indirect control of an Indian business, and Indian resident investment capped at 5% of the corpus on April 1 and October 1 of the tax year. The removal of the 25‑member minimum, 10% single‑investor cap, and other restrictions aligns India’s regime with global standards.

Why This Matters

BozokMedia analysis shows that aligning India’s fund‑management regime with global standards will likely boost inflows of foreign capital, strengthening the country’s balance of payments and creating new jobs in financial services.

The five‑year tax exemption for electronics contract manufacturing, previously set to expire in FY 2030‑31, is now extended to FY 2040‑41, providing a decade‑long incentive for foreign capital goods suppliers.

"These changes will significantly enhance India’s competitiveness as a fund‑management destination," said Tejas Desai, Partner and Financial Services Tax Leader, EY India.

Additional provisions grant a 15‑year tax holiday (until 31 March 2041) for foreign companies engaged in mining, diamond trading, and related activities in notified special zones, as well as new exemptions for data‑centre services and bonded‑area electronic component storage.

Did You Know?: The International Financial Services Centre (IFSC) already hosts several offshore funds, and these reforms could double its asset base within five years.

Frequently Asked Questions

Q1: What conditions will offshore funds still need to meet?

A: They must not be Indian residents, must not control Indian businesses, and Indian resident investment must stay below 5% of the corpus.

Q2: How long is the extended tax exemption for contract manufacturers?

A: The exemption now runs until FY 2040‑41, adding ten extra years to the original five‑year window.