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Indian banks and brokers will not be liable for taxes owed by local representatives of offshore funds, the markets regulator clarified on Wednesday, two sources with direct knowledge of the matter said, lifting a hurdle that had delayed fund launches.

Last month, India's federal tax authorities asked representatives of offshore funds, such as foreign banks that act as custodians, to furnish their details while seeking Indian tax identification for their clients.

This had raised concerns over whether the funds' representatives could be held liable for tax demands on offshore funds, slowing fresh applications from offshore funds looking to enter India.

On Wednesday, the Securities and Exchange Board of India clarified to banks and brokers via email that they would not be subjected to tax liability on behalf of their clients, the sources said.

The clarification followed consultations with the tax department, they said.

Both sources declined to be identified as they are not authorised to speak to the media. SEBI and India's tax department did not immediately respond to queries.

India currently has more than 12,150 licensed foreign investors, who have sought easier entry and exit rules from SEBI in the past. Investors have also been spooked by aggressive tax practices in the past, with the most recent instance being the top court ruling against Tiger Global in a landmark tax demand case.

The clarification comes at a time when foreign investors have remained net sellers of Indian equities, dumping $23 billion so far in 2026.

"These clarifications should now give a boost to closure of pending foreign investor applications and alleviate all concerns which arose from the new requirement," said Rajesh Gandhi, partner, Deloitte Touche Tohmatsu India.

A public clarification on the issue will be released soon by Indian depositories, the sources said. (Reporting by Jayshree P Upadhyay; Editing by Janane Venkatraman)