SEBI eases offshore fund launches with tax clarity (2025)

Why SEBI’s email clarification matters

India’s markets regulator has clarified that banks and brokers will not be held liable for taxes owed by local representatives of offshore funds, according to two sources with direct knowledge of the matter. The clarification removes an operational hurdle that had delayed some fund launches. The Securities and Exchange Board of India (SEBI) communicated the position to banks and brokers via email on Wednesday, the sources said. The issue had been sensitive because intermediaries were seeking certainty that they would not be pursued for a client’s tax obligations. The sources said the clarification followed consultations with the tax department. They also said a public clarification will be released soon by Indian depositories.

What SEBI told banks and brokers

According to the sources, SEBI’s email conveyed that banks and brokers would not be subjected to tax liability on behalf of their clients. In practical terms, the message is intended to ring-fence intermediaries from being treated as the party responsible for a client’s tax dues. The sources described the clarification as addressing a “hurdle” that had delayed offshore fund launches. The regulator’s approach, as described, focuses on easing uncertainty for market participants that support offshore funds. The coming public clarification from depositories is expected to make the position more widely accessible. Until then, market participants are likely to rely on the regulator’s direct communication.

What comes next from Indian depositories

The sources said Indian depositories will soon issue a public clarification on the issue. Depository communication can matter for operational readiness because it typically informs market-wide processes and documentation practices. A public note may also reduce variation in how different intermediaries interpret the regulator’s intent. For offshore funds and their India-facing ecosystem, the timing is important because the earlier uncertainty had contributed to delayed launches. No timeline beyond “soon” was provided in the information shared by the sources. The development sits alongside a broader compliance push on foreign assets and offshore holdings.

CBDT’s foreign asset compliance drive and the Dec 31, 2025 deadline

In parallel, India’s Central Board of Direct Taxes (CBDT) is sending SMS and email alerts to taxpayers about undeclared foreign income and assets. Taxpayers have been urged to review and revise their Income Tax Returns (ITRs) by December 31, 2025 to avoid significant penalties. The information notes that Indian taxpayers are legally bound to declare overseas assets and any income derived from foreign sources in ITR forms. It also states that failure to disclose foreign assets or income can lead to severe financial penalties, with potential liabilities running into several lakhs of rupees. The stated aim of the compliance drive is to encourage voluntary and accurate reporting and reduce the risk of stringent enforcement actions.

Government data on offshore holdings actions under the BMA

Responding to a Lok Sabha query, Minister of State for Finance Pankaj Chaudhary said neither the Income Tax Act nor the Black Money (Undisclosed Foreign Income and Assets) Act (BMA) uses the term “black money.” The minister said enforcement data under the BMA reflects action taken so far on offshore holdings. The Centre disclosed that tax authorities have raised over Rs 40,564 crore in tax and penalty demands on undisclosed foreign assets under the BMA over the past decade. It said that since the BMA came into effect and up to June 30, 2025, authorities completed 1,087 assessments and raised tax and penalty demands exceeding Rs 40,564 crore. The Centre also reiterated that Swiss bank deposits should not be equated with black money.

Another official tally: INR 351 billion demand under the 2015 Act

A separate disclosure quoted the Minister of State for Finance as saying that the government has, till March, raised tax and penalty demand worth INR 351 billion under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Converted into crores, INR 351 billion equals Rs 35,100 crore. This figure is presented as a demand raised “till March” in that update, while the other dataset references cumulative actions over the past decade and assessments completed up to June 30, 2025. Because the time periods and phrasing differ across the updates provided, the numbers should be read as separate stated tallies rather than a single reconciled total.

Policy backdrop: Income-tax Act, 2025 and Finance Act, 2026 changes

The Government of India has enacted the Income-tax Act, 2025, replacing the Income-tax Act, 1961, with effect from 1 April 2026 and applicable from FY 2026-27 onwards. The Finance Act, 2026 introduced multiple measures referenced in the material, including certain decriminalisation for specified offences such as failure to produce books of account and some other cases where the tax amount does not exceed INR 10,00,000. It also rationalised punishment in select cases, including shifts from rigorous to simple imprisonment, reduced maximum terms aligned to the quantum of default, and monetary-only consequences for lower-value defaults.

Targeted tax incentives: data centres, electronics manufacturing, and IFSC

To attract foreign investment in data centres and promote an AI-focused data centre framework, the Finance Act, 2026 introduced a tax exemption effective 1 April 2026 for foreign companies on income earned in India from procuring data centre services from a specified data centre. The exemption is available up to 31 March 2047, subject to prescribed conditions, including that the foreign company does not own or operate the physical infrastructure of the specified data centre and that India-located user sales are made through an Indian reseller entity.

The Finance Act, 2026 also introduced a tax exemption for foreign companies that provide capital goods, equipment, or tooling to Indian contract manufacturers engaged in electronic goods manufacturing in a bonded customs zone, for a period up to tax year 2030-31, subject to specified conditions. Separately, for the International Financial Services Centre (IFSC), the Finance Act, 2026 increased the tax holiday period for units in IFSC to 20 consecutive years out of 25 years, and similarly 20 consecutive years for Offshore Banking Units (OBUs), along with a concessional 15% rate on business income during the non-holiday period.

Market impact: what changes for intermediaries and offshore flows

SEBI’s clarification, as described by the sources, reduces a specific legal and compliance concern for banks and brokers servicing offshore fund structures. This can streamline onboarding and ongoing service decisions, particularly where intermediaries had been cautious about potential tax exposure linked to clients or their local representatives. At the same time, the CBDT’s alert-driven compliance campaign and the published BMA enforcement data reinforce that scrutiny of foreign assets and offshore holdings remains a policy priority. For investors and fund managers, the combined message is that operational rails may be clarified for intermediaries, while reporting expectations for taxpayers and beneficial ownership related checks for funds remain an active area.

Key facts at a glance

Why the story matters now

The immediate significance lies in SEBI’s attempt to remove an execution bottleneck for offshore fund launches by addressing intermediary liability concerns. The broader significance is the clear alignment between market regulation and tax administration on offshore-related compliance, even as specific frictions are clarified for banks and brokers. The upcoming public note from depositories could be an important operational reference point for market participants. Separately, the CBDT’s December 31, 2025 revision deadline creates a near-term compliance milestone for taxpayers with foreign assets or income. And the enforcement numbers disclosed under the BMA provide context for why disclosure and documentation issues remain central to policy.

Conclusion

SEBI’s email clarification to banks and brokers, following consultations with the tax department, addresses a specific uncertainty that had delayed offshore fund launches. In the near term, the market will watch for the promised public clarification from Indian depositories. Meanwhile, CBDT’s foreign-asset compliance messaging and the government’s disclosed BMA demand figures keep offshore disclosures firmly in focus ahead of the December 31, 2025 ITR revision deadline.