By Palak Devpura
Over the past decade, Indian startups have raised nearly $151 billion across more than 25,000 funding rounds. India is now home to more than 2.23 lakh DPIIT-recognized startups, which have created more than 23 lakh direct jobs, making the country the world’s third-largest startup ecosystem.
Yet many of the investment committees approving those investments have been based in Singapore, London, New York or Silicon Valley — not in India.
What if the next investment committee deciding the future of an Indian startup met in Bengaluru instead of Singapore?
That may sound ambitious today, but India’s latest tax reform could bring that possibility closer.
The Bill, introduced by Indian Finance Minister Nirmala Sitharaman, proposes significant changes to the safe-harbor regime for offshore investment funds. For years, many global venture capital funds, private equity firms and family offices have been cautious about locating fund managers in India because of a fundamental tax concern: Could appointing an India-based fund manager expose the offshore fund to Indian taxation?
The existing safe-harbor conditions
To reduce this risk, the existing framework imposed several conditions, including:
| Existing condition | Requirement |
|---|---|
| Minimum investor base | At least 25 investors |
| Single-investor participation | Limited to 10% |
| Investment in one entity | Capped at 25% of the fund corpus |
| Associate-entity investments | Subject to restrictions |
| Minimum fund size | Average monthly corpus of ₹100 crore |
The proposed amendments would substantially simplify this framework by removing several of these requirements, making it easier for eligible offshore funds to be managed from India.
Why this is more than a tax reform
The proposal represents a broader attempt to bring capital allocators closer to the companies seeking capital.
If more fund managers operate from India, investment decisions could become faster, due diligence could become more informed and investors could identify local opportunities earlier. Greater proximity could also give investors a deeper understanding of Indian markets.
READ: Rep. Pramila Jayapal introduces tax plan targeting ultra-wealthy (April 17, 2026)
For India, the ambition goes beyond becoming a destination for global capital. The country could also emerge as a center for global investment decision-making.
What this means for founders
The proposed reform could create new opportunities for Indian startups, but it may also raise the standard of preparedness expected from founders.
A compelling pitch may secure the first meeting, but legal and compliance readiness often determines whether a transaction closes.
Startups looking to benefit from greater investor activity in India should ensure they have:
- A clean and accurate cap table
- Properly documented share issuances and transfers
- FEMA compliance
- Clear intellectual property ownership
- Valid board and shareholder approvals
- Consistent term sheets and shareholder documents
- Organized legal and financial due diligence records
If investors become more deeply embedded in India’s startup ecosystem, legal preparedness could become as important as business potential.
The larger policy direction
The Bill remains under parliamentary consideration and could evolve before becoming law. Nevertheless, its direction is clear.
India is no longer competing only to attract global capital. It is also competing to attract the people who decide where that capital flows.
If this vision succeeds, the amendment could be remembered not merely as a tax change but as a strategic milestone in India’s ambition to become a global financial hub.
The real question is not whether fund managers will come closer to India.
The real question is whether Indian startups are ready when they do.
(Palak Devpura is co-founder of Spinach Laws, a startup-focused legal services firm advising founders on incorporation, brand protection and cross-border transactions. This column is part of the ongoing Spinach Laws × The American Bazaar series on law for founders.)