Government Introduces Tax Revamp to Draw Global Investors and Boost Manufacturing

The Centre has introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, proposing changes to tax rules covering manufacturing, investment funds, digital infrastructure and capital markets, as per The Economic Times news report.  

The legislation seeks to simplify existing provisions, reduce compliance requirements, and provide greater clarity on the tax treatment of several business activities. The Bill will now be taken up for consideration in Parliament. 

Electronics Manufacturing Gets Longer Tax Window 

Among the key proposals is an extension of the tax exemption on foreign-owned tooling and machinery supplied to Indian contract manufacturers until March 2041, adding another 10 years to the existing benefit.  

The relief covers the manufacture of mobile phones, laptops, tablets, personal computers, servers, and their components.  

The Bill also proposes a 15-year tax exemption for foreign companies supplying components through customs-bonded warehouses, replacing the current presumptive taxation system. 

Fund Management Rules Set for Revision 

The proposed law also changes the framework governing offshore investment funds managed from India. The number of conditions required for an eligible foreign fund would be reduced from 13 to five, while safeguards relating to misuse and round-tripping would continue.  

The amendments are intended to address concerns that overseas funds managed from India could become taxable in the country. The same tax treatment has also been proposed for fund managers operating from Gujarat's International Financial Services Centre and those based elsewhere in India. 

Changes for Data Centres and Diamond Trade 

The Bill removes multiple approval requirements for foreign cloud companies using Indian data centres and allows them to operate from leased facilities instead of owning the infrastructure directly.  

It also proposes an income tax exemption until March 2041 for foreign mining companies, brokers, sight-holders, aggregators and auction houses selling rough diamonds through notified special zones in India. 

Other Tax Measures Included 

The legislation retains the tax exemption on dividend income distributed through REITs and InvITs even if the underlying operating company shifts to the concessional corporate tax regime.  

It also gives statutory backing to tax exemptions announced earlier for eligible foreign institutional investors and the Bank for International Settlements on investments in government securities. Several provisions also seek to reduce documentation and simplify tax compliance. 

Read More: India Proposes Tax Relief Extension for Contract Manufacturers! 

Conclusion 

The proposed amendments cover a range of sectors, including manufacturing, financial services, digital infrastructure, and capital markets. The Bill is yet to be debated and approved by Parliament before the proposed changes can be implemented. 

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