Explained: How Taxation and Other Laws (Amendment) Bill, 2026 aims to boost investment and manufacturing

Finance Minister Nirmala Sitharaman on Tuesday introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, proposing a series of tax changes that the government says are aimed at providing greater tax certainty and improving ease of doing business.

The Bill seeks to replace the Income-tax (Amendment) Ordinance promulgated on June 5 and amend the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007.

Why has the Bill been brought?

According to the Statement of Objects and Reasons, geopolitical developments and disruptions in global trade and supply chains created a need for immediate taxation measures to protect the domestic economy and support affected sectors.

“Subsequent policy assessment in view of representations received from stakeholders after the enactment of the Finance Act, 2026 has indicated that, while the objective sought to be achieved through the Ordinance continues to remain relevant, additional taxation measures are necessary to comprehensively achieve the same objective,” the Bill said.

“Further, having regard to the continuing global developments and the need for a timely and coherent response, it is considered appropriate to incorporate these measures in the present Bill itself,” it added.

Changes proposed for investment funds

The Bill relaxes conditions for eligible offshore investment funds and fund managers to qualify for tax benefits by simplifying the eligibility framework.

The amendments are intended to promote fund management activity in India and provide greater tax certainty.

The Bill substantially simplifies the conditions under which offshore investment funds can avoid being treated as having a "business connection" in India.

As per the amendments proposed in the Bill, offshore funds would no longer be required to satisfy the conditions like minimum investor threshold of 25 members, maximum 10% participation interest for a single investor, restriction on investing more than 25% of the corpus in a single entity, restriction on investments in associate entities and minimum monthly average corpus requirement of ₹100 crore.

How does it support electronics manufacturing?

The legislation also extends until the 2040-41 tax year an existing tax exemption for foreign companies providing capital goods, equipment or tooling to Indian contract manufacturers producing specified electronic goods.

The definition of eligible electronic goods has also been widened to include mobile phones, laptops, tablets, servers, ultra-small form factor computers, hearables, wearables, accessories and sub-assemblies.

It also introduces a new exemption for foreign companies storing components in customs bonded warehouses for supply to Indian contract manufacturers producing electronic goods. The exemption will remain available until March 31, 2041.

Relief proposed for foreign investors

The Bill proposes exempting Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) from tax on interest earned from government securities as well as capital gains arising from their sale, exchange or transfer, subject to prescribed reporting requirements.

Boost for diamond trading

It introduces a 15-year tax exemption, up to the tax year ending March 31, 2041, for specified foreign companies engaged in the sale of rough diamonds through notified special zones.

The benefit will extend to diamond mining companies, their sightholders, brokers, aggregators and tender or auction entities, subject to conditions.

What changes affect business trusts?

The Bill removes an existing restriction that denied dividend exemption to unit holders where the underlying special purpose vehicle (SPV) had opted for the new tax regime.

To offset this, it proposes a 25% surcharge on special purpose vehicles opting for the new tax regime, while retaining the 10% surcharge for other domestic companies.

The change has been proposed both for regular tax and advance tax computation.

What experts said

EY India Partner and Financial Services Tax Leader Tejas Desai said the amendments proposed in the Bill are one of the most consequential reforms for India's fund management ecosystem in recent years, as out of the original 13 conditions applicable to qualify as an eligible investment fund, only 5 remain.

"These changes should give the much-needed flexibility to fund managers and significantly enhance India's competitiveness as a fund management destination for both India-focused and global investment strategies," Desai added.

Grant Thornton Bharat Partner-Tax, Richa Sawhney, said the Bill signals a calibrated shift from short-term relief to long-term competitiveness.

"The liberalisation of the fund management regime, incentives for electronics supply chains, facilitation measures for data centres and diamond trading and tax relief for foreign investors in Government securities collectively point towards a policy objective of attracting global capital and business activity into India. Collectively, the amendments reflect a clear emphasis on investment facilitation, supply-chain resilience and long-term tax certainty," Sawhney said.