Govt Plans Tax Relief For Offshore Funds, Electronics' Contract Mfg, Pg13

Key Highlights:

• The Indian government proposes significant tax relaxations for Eligible Investment Funds (offshore funds) managed from India to boost fund management activity.
• The tax exemption for foreign companies providing capital goods for electronics contract manufacturing in India is proposed to be extended until 2040-41.
• A new 15-year tax holiday, until March 31, 2041, is proposed for specified foreign companies involved in the rough diamond trade within a notified special zone in India.
• These amendments are part of the Taxation and Other Laws (Amendment) Bill, 2026, which is expected to be introduced in Parliament.
• The Bill also seeks to replace the Income-tax (Amendment) Ordinance, 2026, which provided tax exemption for Foreign Portfolio Investors (FPIs) on interest income and capital gains from government securities.

Detailed Insights:

• For offshore funds, the government plans to remove 8 out of 13 existing conditions, such as minimum investor thresholds and corpus requirements, to simplify tax exemption.
• The relaxed conditions aim to align India's fund management ecosystem with global structures and enhance its competitiveness as a fund management destination.
• The amendments for offshore funds will also create a uniform framework, removing separate exemption criteria for funds operating from the International Financial Services Centre (IFSC).
• The extension of tax exemption for electronics contract manufacturing aims to provide long-term policy certainty and encourage investments in export-oriented manufacturing.
• This move is expected to benefit global electronics firms, including those expanding iPhone production in India, by exempting them from tax liabilities on equipment supplied to contract manufacturers.
• The tax holiday for rough diamond businesses is intended to promote the diamond trade in India by exempting income from sales in designated special zones.
• The Income-tax (Amendment) Ordinance, 2026, promulgated in June, initially provided complete tax exemption to FPIs on interest income and capital gains from government securities to attract foreign capital and stabilize the rupee.

Key Concepts Involved:

• Eligible Investment Funds (Offshore Funds): Investment vehicles established outside India but managed from India, seeking tax exemption on global income.
• Contract Manufacturing: A business arrangement where one company hires another to produce components or products on its behalf.
• International Financial Services Centre (IFSC): A special financial jurisdiction, like GIFT City, offering world-class financial services to non-residents and residents in foreign currency with competitive tax structures.
• Foreign Portfolio Investors (FPIs): Non-resident entities or individuals investing in Indian securities like stocks, bonds, and mutual funds without seeking managerial control.
• Government Securities (G-Secs): Tradeable debt instruments issued by the Central or State Governments to borrow money, considered low-risk investments.
• Taxation and Other Laws (Amendment) Bill, 2026: Proposed legislation to introduce various tax reforms and replace a previous ordinance.
• Income-tax (Amendment) Ordinance, 2026: An executive order issued in June 2026, providing tax exemptions to FPIs on government securities, which the new Bill aims to codify.