Safe Harbour & Tax Reforms: Navigating Foreign Fund Management & Corporate Tax Amendments (2026)

By Editorial Team / August 18, 2026

Overview: The Taxation and Other Laws (Amendment) Act, 2026 introduces critical statutory shifts under the Income-tax Act, 2025 and Finance Act, 2026. Key highlights include redefined “Safe Harbour” rules for foreign investment funds under Schedule-I, procedural reporting mandates, and restructured tax rates for Special Purpose Vehicles (SPVs). These reforms aim to shield offshore funds managed from India from unintended domestic tax liabilities while streamlining compliance for SEBI-registered entities.

The enactment of the Taxation and Other Laws (Amendment) Act, 2026 marks a decisive step in India’s ongoing effort to attract foreign institutional capital and encourage global fund managers to operate from Indian onshore jurisdictions.

By replacing Schedule I of the Income-tax Act, 2025, the legislature clarifies the specific operational boundaries required for offshore funds to avoid creating a “Business Connection” in India, minimising exposure to domestic corporate taxation.

Key Highlights

5% Resident Limit & Carve-Outs: Direct investment in offshore funds by Indian residents must not exceed 5% of the corpus as of 1st April and 1st October. Contributions of up to ₹25 crore by the fund manager during the first 3 years are excluded from this threshold, with a 4-month cure period if limits are breached.
Fund Manager Independence: Eligible fund managers (SEBI-registered advisors/portfolio managers) must remain non-employees, act in the ordinary course of business, and cap profit-sharing entitlement at 20%.
Mandatory Compliance Statement: Foreign investment funds must furnish a prescribed compliance statement within 90 days from the end of each tax year.
SPV Surcharge & Tax Restructuring: Domestic Special Purpose Vehicles under Schedule V face an adjusted 25% rate structure compared to the 10% rate applicable to general domestic companies under the Finance Act amendments.

Frequently Asked Questions

Does having an Indian fund manager automatically make an offshore fund taxable in India?

No. An offshore fund is not automatically treated as taxable in India merely because it has an Indian fund manager, provided the fund and manager satisfy all the conditions prescribed under Schedule I and remain within the applicable safe harbour requirements.

What is the deadline for filing the annual compliance statement?

Offshore funds must submit the prescribed annual compliance statement within 90 days from the end of the relevant tax year, subject to the applicable rules and filing requirements.

SetIndiaBiz Support

SetIndiaBiz provides comprehensive regulatory and corporate advisory services to help cross-border businesses stay fully compliant:

Offshore Entity & SPV Incorporation: Structuring domestic SPVs and holding companies.
SEBI & Income Tax Compliance: Guidance on SEBI advisor registrations, safe harbour compliance checks, and timely 90-day filing submissions.Tax Exemptions
Corporate Tax Advisory: Strategic evaluation of corporate tax rates and treaty benefits under Indian tax laws.

These statutory amendments offer clear operational parameters for offshore funds and asset managers. Navigating these compliance checks is essential to leveraging tax exemptions while maintaining full regulatory alignment.

Author Bio

Editorial Team