The Taxation and Other Laws (Amendment) Bill, 2026 was passed by the Lok Sabha to replace the earlier Income-tax (Amendment) Ordinance and amend key provisions across the Income-tax Act, 2025, the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007.
The primary objective of the Bill is to boost foreign direct investment (FDI), strengthen the Make in India initiative, enhance ease of doing business, and clarify regulations surrounding digital payments and investment vehicles.
Key Highlights & Major Provisions
- Electronics Manufacturing Relief:
- Extends the income tax exemption for foreign companies supplying capital goods, equipment, or tooling to Indian contract manufacturers by 10 years (now valid up to tax year 2040–41).
- Clearly defines “specified electronic goods” to explicitly cover mobile phones, laptops/tablets, servers, ultra-small form factor (USFF) devices, sub-assemblies, and hearables/wearables.
- REITs and InvITs (Business Trusts) Tax Parity:
- Dividend income received by unitholders of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) is now exempt from tax, even if the underlying Special Purpose Vehicle (SPV) opts for the new concessional tax regime.
- SPVs switching to the new regime benefit from a reduced maximum effective tax rate (dropping to 28.60%), freeing up more cash flow for distributions to investors.
- Easing Offshoring & Fund Manager Relocation:
- Drastically simplifies compliance conditions for eligible foreign investment funds from 13 down to 5 core safeguards.
- Allows foreign fund managers to relocate operations to India without triggering an unintended “business connection” that would make their global fund income taxable in India.
- Data Centre & Cloud Infrastructure Boost:
- Removes multi-layered central government approval requirements for foreign cloud and data services companies using Indian data centers.
- Clarifies that leased data center facilities (not just owned facilities) qualify under the tax exemption framework.
- Exemptions for Foreign Institutions & Sectors:
- Financial Institutions: Grants full income-tax exemption to Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) on interest and capital gains from government securities.
- Diamond Trade: Introduces a tax exemption on sales and storage of rough diamonds by eligible foreign mining entities trading in designated special zones.
- Digital Payment Amendments (Merchant Discount Rate):
- Modifies Section 10A of the Payment and Settlement Systems Act, 2007.
- Empowers the Central Government to notify specific electronic payment modes where a Merchant Discount Rate (MDR) can be levied, paving the way for potential fee structures on high-value UPI or digital transactions.
