India's Lok Sabha has approved the Taxation and Other Laws (Amendment) Bill, 2026, a comprehensive legislative package designed to invigorate the nation's economy. The bill, which replaces the Income-tax (Amendment) Ordinance, 2026, focuses on drawing foreign investment, bolstering domestic manufacturing capabilities, enhancing tax predictability, and supporting India's expanding digital economy.
Key Provisions to Attract Investment and Boost Manufacturing
The new legislation introduces several critical measures intended to make India a more attractive destination for global capital and manufacturing investments, particularly amidst evolving global trade dynamics and supply chain disruptions.
Simplified Tax Framework for Funds
- The bill streamlines the tax framework for eligible offshore investment funds and their managers.
- Compliance requirements have been reduced, aiming to encourage more global fund managers to establish operations within India while maintaining safeguards against misuse.
Tax Exemptions for Foreign Investors
- Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) will receive tax exemptions on interest income and capital gains from government securities, subject to specific reporting conditions.
Boosting Electronics Manufacturing
- The tax exemption for foreign companies supplying capital goods, equipment, and tooling to Indian contract manufacturers of specified electronic products has been extended until March 31, 2041, from the previous sunset date of 2030-31.
- The list of eligible products now includes laptops, tablets, servers, hearables, wearables, and related accessories.
- Foreign companies storing electronic components in customs-bonded warehouses for supply to Indian contract manufacturers will benefit from a 15-year income tax exemption, strengthening the electronics supply chain.
Support for Digital Infrastructure
- The bill removes approval requirements for foreign cloud service providers utilizing Indian data centers.
- It also permits data centers to operate on leased infrastructure, reducing entry barriers for global cloud companies.
Reinforcing the Global Diamond Trade
- Tax exemptions for eligible foreign diamond mining companies, brokers, aggregators, sightholders, and auction entities selling rough diamonds through notified special zones have been extended until March 31, 2041.
Changes for REITs and InvITs
- A restriction denying tax exemption on dividends received by unit holders when the underlying Special Purpose Vehicle (SPV) opted for the new tax regime has been removed.
- To ensure revenue neutrality, a corresponding tax levy will be introduced at the SPV level.
Payment Systems Amendments
The legislation also amends the Payment and Settlement Systems Act, 2007. This empowers the Central government to notify electronic payment modes on which banks or payment system providers cannot levy charges. The amendment broadens the scope of payment modes that may be notified in the future and removes references to the Income-tax Act from these provisions.
The Taxation and Other Laws (Amendment) Bill, 2026, now awaits consideration and passage in the Rajya Sabha before it can be enacted into law.