The Centre has introduced the Tax Amendment Bill, 2026 in the Lok Sabha, proposing a wide range of tax and regulatory reforms aimed at attracting foreign investment, supporting electronics manufacturing, simplifying compliance and strengthening India's overall business environment. If passed by Parliament, the Bill will replace the Income-tax (Amendment) Ordinance, 2026.
Key Highlights
- Tax Amendment Bill 2026 proposes extending electronics manufacturing tax exemptions from 2030-31 until 2040-41 for foreign suppliers.
- Bill also proposes reducing eligibility conditions for offshore investment funds from 13 to five, easing fund management rules.
Finance Minister Nirmala Sitharaman tabled the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha on Tuesday, August 4. The proposed legislation seeks to amend the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. According to the government, the amendments are designed to improve ease of doing business, provide greater tax certainty, attract foreign investment, and support sectors affected by evolving geopolitical developments and disruptions in global trade and supply chains.
Digital Payments: What the Bill Proposes
One of the key proposals under the Taxation and Other Laws (Amendment) Bill, 2026 relates to digital payments. The Bill seeks to amend the Payment and Settlement Systems Act, 2007 to empower the central government to notify electronic payment modes on which banks or payment system providers will not be permitted to levy charges. This provision will apply only to payment modes notified by the government after the proposed law comes into force.
Also Read: Finance Ministry Proposes Reintroducing MDR on UPI Transactions
Electronics Manufacturing: Tax Incentives Extended Till 2040-41
The Bill proposes extending the existing tax exemption available to eligible foreign companies that supply capital goods, equipment or tooling to Indian contract manufacturers producing specified electronic goods. This exemption, currently available until the 2030-31 tax year, is proposed to be extended by another 10 years, taking it through to the 2040-41 tax year.
To bring greater clarity, the Bill also defines "specified electronic goods," which include mobile phones, laptops, all-in-one personal computers, tablets, servers, ultra small form factor (USFF) devices, related sub-assemblies, and hearables, wearables and their accessories. According to the government, this proposal is aimed at supporting electronics manufacturing in India under the Make in India initiative.
Data Centre Services and Rough Diamond Trade
The Bill also proposes changes to the tax framework governing eligible foreign companies procuring data centre services from specified Indian data centres. Under the proposed amendments, the requirement for the central government to separately notify eligible foreign companies and specified data centres will be removed. The Bill also proposes allowing eligible Indian companies to operate specified data centres under a lease model, in addition to ownership, while continuing to comply with prescribed reporting requirements.
Separately, the Amendment Bill proposes a tax exemption for eligible foreign diamond mining companies, sightholders, brokers, aggregators, and tender or auction entities on income from the sale of rough diamonds through Special Notified Zones (SNZs), subject to prescribed conditions. This exemption is proposed to remain available until March 31, 2041.
Tax Relief for Electronics Component Suppliers and REIT/InvIT Investors
Another key proposal under the Bill seeks to provide a tax exemption to eligible foreign companies that store electronic components in customs-bonded warehouses before supplying them to Indian contract manufacturers. This exemption, too, is proposed to be available until March 31, 2041, subject to prescribed conditions and reporting requirements.
The Bill also proposes continuing the tax exemption on dividends received by unit holders of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), even where the underlying special purpose vehicle (SPV) has opted for the new tax regime. This is intended to provide tax certainty following changes to the Minimum Alternate Tax (MAT) framework introduced under the Finance Act, 2026.
Simpler Rules Proposed for Eligible Investment Funds
To encourage global fund management activity in India, the Taxation and Other Laws (Amendment) Bill, 2026 proposes relaxing the conditions that eligible offshore investment funds must meet to avoid creating a business connection in India. The number of eligibility conditions is proposed to be reduced from 13 to five, including requirements around fund residency, DTAA coverage, capping Indian resident investment at 5% of the fund's corpus, and ensuring no business connection is created in India outside an eligible fund manager.
Tax Relief Proposed for Foreign Investors in Government Securities
The Bill also proposes to provide exemption from tax on interest income, sale, exchange and/or transfer of government securities for eligible Foreign Institutional Investors (FIIs) and Bank for International Settlements (BIS) on the prescribed terms and conditions.
What Happens Next
The Taxation and Other Laws (Amendment) Bill, 2026 will then be going through parliamentary process. Once passed by both houses of Parliament and approved by the President, it will take the place of the Income-tax (Amendment) Ordinance, 2026. FM Sitharaman also says the Bill includes extra tax provisions after consultations with stakeholders after the Finance Act, 2026. The bill is likely to make India's investment environment more robust, promote local manufacturing, ease compliance processes, and make the nation a more competitive investment destination.
