Lok Sabha introduces the Taxation And Other Laws (Amendment) Bill, 2026 Proposes Targeted Tax Reliefs To Boost Electronics Manufacturing, Data Centres, Diamond Trade And Fund Management; With Important FAQs

The Taxation and Other Laws (Amendment) Bill, 2026

• The Taxation and Other Laws (Amendment) Bill, 2026—Bill No. 150 of 2026—has been introduced in the Lok Sabha to further amend the Payment and Settlement Systems Act, 2007 and the Income-tax Act, 2025, and to amend the Finance Act, 2026. On enactment, it may be called the Taxation and Other Laws (Amendment) Act, 2026. Except where a separate date has been specifically provided, the proposed legislation shall be deemed to have come into force from 1 April 2026.
• The Bill seeks to replace the Income-tax (Amendment) Ordinance, 2026, which was promulgated on 5 June 2026 when Parliament was not in session. Actions already taken under the Ordinance would remain valid and would be deemed to have been taken under the corresponding provisions of the proposed Act.
• The legislative measures have been proposed against the backdrop of evolving geopolitical developments, disruptions in international trade and supply chains, and uncertainty in the global economic landscape. The Bill aims to mitigate the impact of external economic shocks, support key sectors, maintain stability in the domestic economy, improve ease of doing business and provide greater tax certainty.

No charge on notified electronic payment modes

• The Bill proposes to amend section 10A of the Payment and Settlement Systems Act, 2007. The existing reference to electronic payment modes prescribed under section 269SU of the Income-tax Act, 1961 would be replaced by a provision covering one or more electronic payment modes that may be specified by the Central Government through notification. Consequently, no bank or payment-system provider would be permitted to impose, directly or indirectly, any charge on a person making or receiving payment through such notified electronic modes. This amendment would take effect from the date of publication of the Act in the Official Gazette.

Conditions for eligible investment funds rationalised

• Schedule I of the Income-tax Act, 2025 is proposed to be substituted to rationalise the conditions under which fund-management activities carried out in India by an eligible fund manager would not constitute a business connection in India for the foreign investment fund. The objective is to promote fund-management activity in India and provide certainty to foreign funds and fund managers considering relocation to India.
• As explained in the accompanying FAQs, the number of conditions applicable to an eligible investment fund is proposed to be reduced from 13 to five principal conditions. The fund must not be resident in India; it must be resident in a country or specified territory having a Double Taxation Avoidance Agreement with India or be established in a notified jurisdiction; aggregate direct investment by Indian residents must generally not exceed five per cent of the corpus; the fund must not carry on, control or manage any business in India; and no person acting for the fund may undertake activities constituting a business connection in India, except activities undertaken by the eligible fund manager.
• For calculating the five per cent limit, contributions of up to ₹25 crore made by the eligible fund manager during the first three years of the fund’s operation would not be considered. Where the limit is exceeded on 1 April or 1 October of a tax year, the condition may still be treated as satisfied if compliance is restored within four months.
• The eligible fund manager would continue to be required to satisfy four conditions, including registration under the applicable investment-adviser or portfolio-manager regulations, acting in the ordinary course of business and not being entitled—together with connected persons—to more than 20 per cent of the profits arising to the eligible fund from transactions conducted through the manager. Eligible funds would also be required to furnish the prescribed statement within 90 days from the end of the tax year.

Electronics manufacturing exemption extended by ten years

• The Bill proposes to amend Serial No. 13A of Schedule IV of the Income-tax Act, 2025 to extend the exemption available to a foreign company providing capital goods, equipment or tooling to an Indian contract manufacturer. The exemption, presently available up to Tax Year 2030-31, is proposed to be extended by another ten years, up to Tax Year 2040-41.
• The exemption would continue to be subject to conditions, including that ownership of the capital goods, equipment or tooling remains with the foreign company; the goods remain under the control and direction of the contract manufacturer; the manufacturer is an Indian resident company located in a customs-bonded area; and the specified electronic goods are manufactured on behalf of the foreign company for consideration.
• To provide greater clarity and certainty, “specified electronic goods” would cover mobile phones; laptops, all-in-one personal computers and tablets; servers and ultra-small-form-factor devices; sub-assemblies of these finished products; and hearables, wearables and accessories related to the specified finished goods.

Data-centre framework simplified to improve ease of doing business

• The Bill proposes important changes to the exemption available to a foreign company procuring services from a specified data centre in India. The existing exemption is available up to the tax year ending on 31 March 2047, subject to prescribed conditions relating to the foreign cloud-services company, the Indian reseller and the specified data centre.
• Under the proposed amendments, the requirement for separate notification of the foreign company by the Central Government would be removed. The requirement for notification of the specified data centre by the Ministry of Electronics and Information Technology would also be omitted. Compliance would instead be monitored through the furnishing of information in the form and manner prescribed under the rules.
• The definition of a specified data centre would also be broadened. An Indian company would be permitted to operate the data centre either by owning it or by taking it on lease, subject to other prescribed conditions. The change addresses stakeholder concerns that mandatory ownership by the Indian operator was restrictive and did not adequately accommodate commonly used leased-infrastructure models.
• The FAQs further clarify that the income of the resident Indian company operating the data centre would continue to be determined under the normal provisions of the Income-tax Act, 2025. Where the Indian data-centre company is an associated enterprise of the foreign cloud-services company and is remunerated on cost, a 15 per cent safe-harbour margin has been provided for determining the arm’s-length remuneration.

Tax exemption for investment in Government securities

• The Bill proposes the insertion of Serial Nos. 13D and 13E in Schedule IV to provide exemption in respect of interest earned on Government securities and capital gains arising from their sale, exchange or transfer. The exemption would be available respectively to Foreign Institutional Investors and the Bank for International Settlements, subject to furnishing information in the prescribed form and manner.

Fifteen-year exemption for sale of rough diamonds

• With effect from 1 October 2026, a new Serial No. 13F is proposed to be inserted in Schedule IV to provide exemption on income arising from the sale of rough diamonds. Eligible entities would include foreign companies engaged in diamond mining and foreign companies functioning as sightholders, brokers, aggregators, or tender and auction entities connected with such business.
• The exemption would apply where the sale of rough diamonds takes place in a notified Special Notified Zone, including the zones referred to in the FAQs at Mumbai and Surat, and where the foreign company maintains and furnishes the prescribed information. The exemption would be available for 15 years, up to the tax year ending on 31 March 2041.
• For this purpose, a rough diamond would mean a diamond that is unworked or merely sawn, cleaved or bruted, falling under specified Customs Tariff headings and accompanied by a Kimberley Process Certificate.

Exemption for storage and supply of electronic components

• The Bill also proposes to insert Serial No. 13G in Schedule IV, with effect from 1 October 2026, to provide exemption to a foreign company on income accruing or arising from storage of electronic components in a warehouse situated in a customs-bonded area. The components must be supplied to an Indian contract manufacturer for manufacturing specified electronic goods on behalf of a foreign company.
• The exemption would apply to income from the sale of such components, subject to furnishing the prescribed information, and would remain available for 15 years up to the tax year ending on 31 March 2041. A “custom bonded area” means a warehouse covered by section 65 of the Customs Act, 1962, while a contract manufacturer means an Indian company manufacturing specified electronic goods on behalf of a foreign company in such an area.
• The measure is intended to support global supply-chain arrangements by allowing foreign companies to maintain inventories of components near Indian manufacturing facilities without creating additional tax exposure, provided the statutory and reporting conditions are fulfilled.

Dividend exemption for business-trust unit holders

• The Bill proposes to amend Schedule V of the Income-tax Act, 2025 to allow exemption on dividends received by a unit holder of a business trust even where the special purpose vehicle of that business trust has opted for the new tax regime under section 200. Under the existing provisions, the exemption is not available to the unit holder where the SPV has moved to the new regime.
• The change is intended to ensure that an SPV’s decision to move to the new tax regime—whether to avoid final Minimum Alternate Tax liability under the old regime or to utilise accumulated MAT credit—does not result in the unit holder losing the dividend exemption. The proposal is expected to provide certainty to investors in infrastructure and real-estate business trusts.
• As a consequential revenue measure, the Finance Act, 2026 is proposed to be amended to prescribe a surcharge rate of 25 per cent for a domestic company that is an SPV of a business trust and has moved to the new tax regime, compared with the 10 per cent rate applicable to other domestic companies covered by the provision. This represents an additional surcharge of 15 percentage points for such SPVs.

Implementation through prescribed reporting requirements

• Several exemptions under the proposed legislation would be subject to maintenance or furnishing of information in the form and manner to be prescribed. The Central Board of Direct Taxes would be empowered to frame rules, forms and procedures for implementation, verification and monitoring of the relevant conditions.
• The Bill is expected to provide a more predictable tax framework for electronics manufacturing, cloud and data-centre services, the diamond trade, global fund management, Government-security investments and business trusts. The combination of longer exemption periods, simplified approvals, leased-infrastructure recognition and clearly defined reporting obligations is aimed at encouraging investment while maintaining appropriate tax-administration safeguards.
• According to the Financial Memorandum accompanying the Bill, no additional expenditure from the Consolidated Fund is contemplated as a result of its enactment.
• The Bill was presented with the objective of replacing the Income-tax (Amendment) Ordinance, 2026 through an Act of Parliament and introducing further measures required in view of stakeholder representations and continuing global economic developments.

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