India is reportedly preparing to seek parliamentary approval for a set of tax reforms aimed to attract foreign investment in India and strengthening domestic manufacturing. The move comes as Prime Minister Narendra Modi refocuses the government's economic agenda following recent student protests.
Key Highlights
- Government proposes formalising tax cuts for overseas investors buying Indian sovereign debt to curb capital outflows.
- Contract manufacturer tax exemptions may extend to 2041, covering mobile phones, laptops, tablets and servers.
According to a report, the proposed measures include formalising tax cuts for overseas investors buying Indian sovereign debt, along with provisions to protect offshore funds from tax liability when their investments are managed by India-based fund managers. Parliament is also expected to vote on extending tax holidays for overseas suppliers of equipment to domestic electronics manufacturers, in addition to offering tax benefits to data centres and the diamond mining sector.
Extended Tax Exemptions for Electronics Manufacturers
Among the key proposed changes, amendments to the Income Tax Act would extend tax exemptions for contract manufacturers until 2041, up from the current expiry date of 2031. This extended exemption window would cover a range of electronics products, including mobile phones, laptops, tablets and servers - a move seen as aimed at strengthening India's position in global electronics manufacturing supply chains.
Tax Relief for Foreign Institutional Investors on Government Securities
The government also plans to convert into law an existing ordinance that exempts foreign institutional investors from tax on interest income earned from government securities, as well as capital gains arising from the sale, exchange or transfer of such securities. Formalizing this exemption through legislation would provide greater long-term certainty to overseas investors participating in India's debt markets.
Also Read: Indian Bond Market Sees Rs 32,630 Crore Foreign Inflows Post Reforms
Reforms Aimed at Curbing Capital Outflows, Supporting the Rupee
The proposed measures form part of the government's broader strategy to curb capital outflows, support the rupee and strengthen the economy against external shocks, particularly in the aftermath of the recent US-Iran conflict. By formalising tax incentives for foreign investors, the government aims to make Indian sovereign debt and manufacturing-linked investments more attractive at a time of heightened global economic uncertainty.
Sitharaman Likely to Introduce Bills
Finance Minister Nirmala Sitharaman is expected to introduce the relevant bills during the current parliamentary session, which runs until August 13. However, the session has already faced disruptions due to opposition demands for debates on exam paper leaks and student protests. With less than ten days remaining in the session, the government faces mounting pressure to push through the proposed tax reforms despite ongoing legislative challenges.
