Taxation and Other Laws (Amendment) Bill, 2026 proposes tax changes to attract global capital, boost manufacturing

New Delhi: The government has proposed a series of tax reforms under the Taxation and Other Laws (Amendment) Bill, 2026, aimed at attracting foreign investment, strengthening India’s manufacturing ecosystem and improving the ease of doing business.

The proposed legislation is built around three broad themes : attracting foreign capital, promoting the Make in India initiative and simplifying tax compliance, with measures designed to provide greater certainty to global investors and businesses operating in India.

To encourage foreign investment funds to operate from India, the Bill proposes a significant relaxation in the conditions governing fund managers.

 The move seeks to ensure that global investment funds are not treated as carrying on business in India merely because their fund managers are based in the country. The government expects this to encourage more global fund managers to relocate to India, creating high-value jobs while retaining safeguards against misuse and round-tripping.

The Bill also proposes tax relief for investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Dividend income distributed through business trusts will continue to remain tax-exempt in the hands of investors even if the underlying operating company shifts to the new corporate tax regime. To maintain revenue neutrality, an additional levy will instead be imposed at the operating company level.

In a bid to strengthen India’s digital infrastructure, the government has proposed to simplify tax rules for foreign cloud companies using Indian data centres.

 The Bill removes multiple approval requirements and permits leased data centre models, a move expected to support the development of large AI data centres and attract global cloud investments.

On the manufacturing front, the Bill extends by 10 years the tax exemption available on income earned by foreign companies supplying machinery and tooling to Indian contract manufacturers of electronics. The incentive will now remain available for a total period of 15 years, up to FY2040-41, and will cover products such as mobile phones, laptops, personal computers, tablets and servers.

The legislation also proposes a 15-year tax exemption for foreign diamond miners and related entities selling rough diamonds through notified trading zones in Mumbai and Surat, with the objective of positioning India as a global hub for the rough diamond trade.

Additionally, income earned by foreign companies from storing electronic components in bonded warehouses for supply to Indian manufacturers will be fully exempt from tax for 15 years, replacing the existing presumptive taxation framework.

The government believes this will encourage just-in-time supply chains and further strengthen India’s electronics manufacturing ecosystem while reducing compliance burdens for global suppliers.