CBDT Notifies Amended 'Specified Fund' Definition for GIFT IFSC Effective July 21, 2026

What was decided

On 21 July 2026, the Central Board of Direct Taxes (CBDT) notified the Income-tax (Second Amendment) Rules, 2026, revising the definition of 'specified fund' for the purposes of the Rules. The revised provisions came into effect on 21 July 2026. The notification, numbered G.S.R. 646(E), was published in the Gazette of India (Extraordinary) on July 21, 2026, and takes effect immediately upon publication.

The Central Board of Direct Taxes (CBDT) has notified the Income-tax (Second Amendment) Rules, 2026 through Notification No. 94/2026, dated 21 July 2026. The amendment has been issued under sections 533 and 262 of the Income-tax Act, 2025 and comes into force from the date of its publication in the Official Gazette.

The operative change to Rule 157

The amendment substitutes Rule 157(5)(c) of the Income-tax Rules, 2026, changing the meaning of 'specified fund' under the Rules.

A 'specified fund' now includes a fund set up in India as a trust, company, LLP or body corporate, if it is registered as a Category I or Category II Alternative Investment Fund (AIF), regulated under either the SEBI (Alternative Investment Funds) Regulations, 2012, or the IFSCA (Fund Management) Regulations, 2022. An IFSCA-regulated fund is treated as a 'specified fund' if it is located in an International Financial Services Centre (IFSC).

The amended definition also includes any fund referred to in Schedule VI [Note 1(g)] of the Income-tax Act, 2025.

Effect on GIFT IFSC specifically

The Central Board of Direct Taxes has notified this amendment to Rule 157 of the Income-tax Rules, 2026, and effective from 21 July 2026 it revises the definition of a 'specified fund', expanding the scope of eligible investment funds operating within GIFT IFSC. The notification is significant for investment managers, Alternative Investment Funds (AIFs), Fund Management Entities (FMEs), and businesses operating in India's international financial ecosystem. It further aligns the tax framework with the evolving regulatory environment of GIFT IFSC while supporting internationally recognised fund management structures.

As GIFT IFSC continues expanding across investment management, alternative funds, fintech, banking, and capital markets, the amendment to Rule 157 demonstrates the Government's continued focus on modernising India's tax framework while supporting internationally regulated investment vehicles operating within GIFT IFSC.

Why the definition matters

Whether a fund qualifies as a 'specified fund' determines its access to IFSC-linked tax treatment under India's income-tax framework, including pass-through and exemption provisions tied to non-resident unit holders. Certain capital gains and income arising to specified funds — including Category-III AIFs, retail schemes, and Exchange Traded Funds located in an IFSC — are exempt to the extent attributable to non-resident unit holders, as computed in the prescribed manner. By writing Category I and Category II AIFs registered under either the SEBI or IFSCA frameworks into the Rule 157 definition, the amendment extends this classification-driven treatment to a wider set of fund structures than the definition previously covered.

This amendment is expected to improve tax compliance for investment vehicles, particularly those operating in IFSCs, while ensuring clarity in the classification of funds eligible for tax benefits, and it also aligns domestic regulations with international fund management frameworks, strengthening India's position as a global investment hub.

Practical effect for market participants

• Investment managers and FMEs in GIFT IFSC: Should review existing fund structures under the revised Rule 157 definition and ensure regulatory and tax documentation reflects current requirements.
• New fund launches: Professional advice is advisable before restructuring or launching investment funds under the revised classification.
• Ongoing monitoring: Market participants should monitor future CBDT and IFSCA notifications for additional guidance on the amended definition.
• Base framework: The Income-tax Rules, 2026 were originally notified on March 20, 2026, and last amended on March 31, 2026, meaning this is one of several successive refinements to the same rulebook rather than a standalone, one-off change.