Lok Sabha passes Taxation Amendment Bill to boost investment, manufacturing, ease of doing business

The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, paving the way for a series of tax and regulatory changes aimed at attracting foreign investment, strengthening domestic manufacturing, improving tax certainty and supporting India's digital economy. The legislation replaces the Income-tax (Amendment) Ordinance, 2026, while incorporating additional measures following stakeholder consultations.

The Bill amends the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. According to the government, the changes come amid evolving geopolitical tensions and disruptions in global trade and supply chains. The objective is to shield the domestic economy from external shocks, improve ease of doing business and make India a more predictable destination for global capital and manufacturing investments.

One of the key provisions simplifies the tax framework for eligible offshore investment funds and fund managers. By reducing compliance requirements while retaining safeguards against misuse and round-tripping, the government expects the move to encourage more global fund managers to establish operations in India.

Tax exemptions

The legislation also grants tax exemptions on interest income and capital gains earned from government securities by Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS), subject to prescribed reporting conditions.

To support India's electronics manufacturing ambitions, the Bill extends the tax exemption available to foreign companies supplying capital goods, equipment and tooling to Indian contract manufacturers of specified electronic products until the tax year ending March 31, 2041, instead of the earlier sunset date of 2030-31. The list of eligible products has also been expanded to include laptops, tablets, servers, hearables, wearables and related accessories.

In another push for the sector, foreign companies storing electronic components in customs-bonded warehouses for supply to Indian contract manufacturers will receive a 15-year income tax exemption, a measure intended to strengthen India's electronics supply chain.

The Bill also seeks to support digital infrastructure by removing approval requirements for foreign cloud service providers using Indian data centres. It further allows data centres to operate on leased infrastructure instead of requiring direct ownership, a move expected to lower entry barriers for global cloud companies.

Global diamond trade

To reinforce India's role in the global diamond trade, the legislation extends tax exemptions until March 31, 2041, for eligible foreign diamond mining companies, brokers, aggregators, sightholders and auction entities selling rough diamonds through notified special zones.

For REITs and InvITs, the Bill removes a restriction that denied tax exemption on dividends received by unit holders when the underlying special purpose vehicle (SPV) opted for the new tax regime. To maintain revenue neutrality, it introduces a corresponding tax levy at the SPV level.

The legislation also amends the Payment and Settlement Systems Act, 2007, empowering the Centre to notify electronic payment modes on which banks or payment system providers cannot levy charges. The amendment removes references to the Income-tax Act from these provisions and broadens the scope of payment modes that may be notified in future.

The Bill now awaits consideration in the Rajya Sabha before becoming law.

FAQs on Taxation and Other Laws (Amendment) Bill, 2026

1. Why has CBDT released an FAQ on the Taxation and Other Laws (Amendment) Bill, 2026?

CBDT has issued a detailed FAQ to help taxpayers, businesses, professionals and other stakeholders understand the key proposals in the Bill and how the amendments are expected to work.

2. What is the main objective of the Taxation and Other Laws (Amendment) Bill, 2026?

The Bill aims to promote manufacturing, attract foreign investment, strengthen India's electronics and data centre ecosystems, support the diamond trade, simplify tax rules for investment funds and improve ease of doing business.

3. What change has been proposed for electronics manufacturing?

The Bill proposes extending the tax exemption available to foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers of specified electronic goods by another 10 years, up to Tax Year 2040-41.

4. Which products qualify as "specified electronic goods"?

The Bill proposes to define specified electronic goods to include products such as laptops, tablets, servers, hearables, wearables and related accessories, among others.

5. How does the Bill support India's data centre industry?

The proposed amendments relax certain conditions applicable to foreign companies procuring data centre services from Indian facilities, making it easier for them to use India's data centre infrastructure.

6. What tax benefit has been proposed for foreign cloud and data centre companies?

The proposal seeks to improve ease of doing business by relaxing compliance requirements for foreign companies using Indian data centres, encouraging greater investment in digital infrastructure.

7. What is the new tax proposal for the diamond sector?

Foreign mining companies selling rough diamonds through Special Notified Zones (SNZs) in Mumbai and Surat will be eligible for a tax exemption, subject to prescribed reporting requirements. The exemption is proposed until March 31, 2041.

8. How does the Bill strengthen the electronics supply chain?

It proposes a 15-year tax exemption for foreign companies that store electronic components in customs-bonded warehouses and supply them to Indian contract manufacturers producing specified electronic goods.

9. What changes have been proposed for business trusts such as REITs and InvITs?

The Bill proposes extending dividend tax exemption to unit holders even when the Special Purpose Vehicle (SPV) has opted for the new tax regime. To maintain revenue neutrality, a 15% additional surcharge is proposed on such SPVs.

10. How will foreign investment funds benefit from the Bill?

The Bill proposes simplifying eligibility conditions for foreign investment funds whose managers relocate to India by reducing the number of qualifying conditions from 13 to 5, making the framework more investor-friendly.

11. Why is the government simplifying tax rules for foreign fund managers?

The objective is to provide greater tax certainty, reduce compliance burden and encourage more global investment funds to establish fund management operations in India.

12. Who is expected to benefit from these proposed amendments?

The Bill is expected to benefit electronics manufacturers, foreign investors, data centre operators, global investment funds, business trusts (REITs and InvITs), foreign diamond companies and India's broader manufacturing and digital infrastructure ecosystem.