The Centre on Tuesday introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, proposing a series of changes aimed at making India’s tax regime more investment-friendly while supporting manufacturing, strengthening the financial sector and providing greater tax certainty.
The Bill seeks to amend the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. It will also replace the Income-tax (Amendment) Ordinance, 2026, while validating actions already taken under the ordinance.
News agency ANI reported that the amendments have been proposed against the backdrop of evolving geopolitical tensions and disruptions in global trade and supply chains. The objective is to cushion the Indian economy from external shocks, improve ease of doing business and attract long-term investments.
Why has the government introduced the Bill?
The government said the proposed amendments are intended to provide greater tax certainty, encourage investment, strengthen domestic manufacturing and simplify tax compliance.
The Bill also incorporates additional tax measures that were considered necessary after stakeholder consultations following the passage of the Finance Act, 2026.
Easier tax rules for offshore investment funds
One of the biggest proposals in the Bill is the simplification of tax rules governing offshore investment funds and their India-based fund managers.
The government has proposed to rationalise the existing “safe harbour” framework by reducing compliance requirements while retaining key safeguards. The move aims to encourage global investment funds to use India-based fund managers without the risk of creating unintended tax liabilities.
The proposal is expected to promote India’s fund management industry while providing overseas investors with greater tax certainty.
Tax incentives for electronics manufacturing extended
The Bill also seeks to strengthen India’s electronics manufacturing ecosystem by extending tax benefits for foreign companies supplying machinery, equipment and tooling to Indian contract manufacturers.
Under the proposal, the tax exemption available to such foreign companies has been extended until the tax year ending March 31, 2041, instead of expiring in 2030-31.
The scope of eligible products has also been widened. In addition to existing categories, the proposal now covers laptops, tablets, servers, hearables, wearables and related accessories.
The move aligns with the government’s broader push to position India as a global electronics manufacturing hub.
Relief for foreign investors in government securities
The proposed Bill introduces fresh tax exemptions for foreign investors investing in Indian government securities.
Foreign Institutional Investors (FIIs) and the Bank for International Settlements would be exempt from paying tax on interest income as well as capital gains arising from the sale, transfer or exchange of eligible government securities, subject to prescribed reporting requirements.
The proposal is expected to improve the attractiveness of India’s government bond market among global investors.
Push for India’s diamond trade
To strengthen India’s position in the global diamond value chain, the Bill proposes tax exemptions for eligible foreign diamond mining companies and related entities selling rough diamonds through notified special zones.
The exemption, proposed until March 31, 2041, will cover income earned by eligible mining companies, sight holders, brokers, aggregators and auction entities from such transactions.
The measure aims to reinforce India’s status as one of the world’s leading diamond trading and processing centres.
Business trusts may get dividend tax relief
The Bill also proposes to remove an existing tax restriction affecting business trusts. Currently, unit holders lose dividend tax exemption if the underlying special purpose vehicle (SPV) opts for the new corporate tax regime.
The proposed amendment removes this restriction, allowing eligible unit holders to continue receiving dividend tax benefits irrespective of the SPV’s tax regime.
Changes proposed in digital payment rules
Beyond taxation, the Bill seeks to amend the Payment and Settlement Systems Act, 2007. The proposal removes references to the Income-tax Act in provisions governing electronic payment modes and empowers the Central Government to notify digital payment modes on which banks or payment system providers cannot levy charges.
The amendment is intended to provide greater flexibility in promoting digital payments.
Ordinance to be replaced
The Bill will formally replace the Income-tax (Amendment) Ordinance, 2026, which was promulgated earlier this year.
The Bill validates all actions already taken under the Ordinance while incorporating additional taxation proposals that emerged after consultations with stakeholders.