In order to boost foreign investment and strengthen India's manufacturing ecosystem, the Centre has proposed amendments to the Income-tax Act, 2025 through the Taxation and Other Laws (Amendment) Bill, 2026. The proposed changes seek to simplify tax rules, provide greater certainty and extend incentives for key sectors.
Key questions answered on the proposed tax amendments.
What is the Taxation and Other Laws (Amendment) Bill, 2026?
The Centre has proposed a series of amendments to the Income-tax Act, 2025 through the Taxation and Other Laws (Amendment) Bill, 2026, with the objective of making India a more attractive destination for global investors.
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The proposals focus on providing long-term tax certainty, easing compliance requirements and extending incentives for sectors such as electronics manufacturing, data centres, investment funds and the diamond trade.
Why has the government proposed these changes?
The amendments are aimed at strengthening India's position as a global manufacturing, technology and financial hub.
By simplifying tax rules and extending exemptions, the government hopes to attract long-term foreign capital, encourage global companies to expand operations in India and support initiatives such as "Make in India."
What is the biggest tax incentive proposed for manufacturers?
One of the key proposals extends, by 10 years until March 31, 2041, the tax exemption available to foreign companies that supply capital goods, machinery, equipment and tooling to Indian contract manufacturers.
The extension is expected to provide policy stability and encourage multinational companies to deepen their manufacturing presence in India.
How will electronics manufacturers benefit?
The Bill introduces a comprehensive definition of "specified electronic goods," removing ambiguity around products eligible for tax benefits.
The proposed definition covers smartphones, laptops, tablets, servers, ultra-small form factor servers, wearable devices, sub-assemblies and related accessories.
The clarity is expected to improve tax certainty for global electronics manufacturers investing in India.
What changes have been proposed for data centres and cloud services?
The government has proposed a more liberal tax framework for foreign companies procuring cloud and data centre services from India.
The amendments eliminate the requirement for separate government notifications for eligible foreign companies and specified data centres, allow leased data centre facilities alongside owned infrastructure and simplify compliance norms.
The move is intended to support India's growing role as a global data centre and cloud services destination.
How does the Bill support India's electronics supply chain?
The proposed legislation exempts foreign companies from tax on income arising from storing electronic components in customs-bonded warehouses for supply to Indian contract manufacturers.
The benefit, available until March 31, 2041, applies where the components are used to manufacture specified electronic goods and prescribed reporting requirements are met.
The proposal aims to strengthen supply chains and improve manufacturing efficiency.
What relief has been proposed for the diamond industry?
To reinforce Mumbai's position in the global rough diamond trade, the Bill proposes a tax exemption for foreign mining companies selling rough diamonds through the Special Notified Zone (SNZ) in Mumbai.
The exemption will remain available until March 31, 2041, subject to compliance with prescribed conditions and reporting requirements.
What changes affect business trusts and REIT-like structures?
The proposed amendments ensure that investors in business trusts continue to receive dividend income tax exemption even if the underlying Special Purpose Vehicle (SPV) opts for the new corporate tax regime.
To offset the revenue impact, the government has proposed an additional 15% surcharge on such SPVs.
What has been proposed for overseas investment funds?
The Bill seeks to make India a more attractive destination for global fund management by reducing the eligibility conditions for qualifying investment funds from 13 to five.
It also clarifies that fund management activities carried out in India by eligible fund managers will not create a taxable business connection, provided prescribed conditions are satisfied.
Additional relaxations have also been proposed for fund managers operating from the International Financial Services Centre (IFSC).
What is the broader impact of these proposals?
Taken together, the proposed amendments are designed to improve ease of doing business, provide long-term tax certainty and enhance India's competitiveness as a manufacturing, technology and investment destination.
By supporting sectors ranging from electronics and data centres to investment funds and diamond trading, the government aims to strengthen supply chains, attract foreign investment and align the country's tax framework with its broader economic growth strategy.
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