Key Details
The Taxation and Other Laws (Amendment) Bill, 2026, introduced in the Lok Sabha, would amend the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025 and the Finance Act, 2026. It also replaces the Income-tax (Amendment) Ordinance promulgated on 5 June 2026.
Area | Proposed Change |
|---|---|
Digital Payments | Retains the prohibition on charges for specified electronic payments while allowing the Central Government to notify eligible modes directly |
Offshore Funds | Replaces Schedule I with fewer eligibility conditions for foreign investment funds using India-based fund managers |
Government Securities | Exempts specified interest and capital gains earned by Foreign Institutional Investors and the Bank for International Settlements |
Electronics Manufacturing | Extends the capital-goods exemption to 2040–41 and introduces an exemption for foreign companies storing components in customs bonded warehouses |
Data Centres | Removes the requirement to notify individual foreign companies and permits eligible data centres to be operated through ownership or leasing |
Diamond Trading | Exempts specified foreign companies’ income from rough-diamond sales in notified special zones until 2040–41 |
Business Trusts | Expands the dividend exemption available to unit holders where an SPV has opted for the new tax regime |
SPV Surcharge | Applies a 25% surcharge to specified domestic-company Special Purpose Vehicles (SPVs), compared with 10% for other domestic companies |
General Commencement | Deemed effective from 1 April 2026, except where the Bill specifies another date |
The Bill Replaces an Earlier Tax Ordinance
The Taxation and Other Laws (Amendment) Bill, 2026 responds to what its Statement of Objects and Reasons describes as geopolitical uncertainty and disruptions to international trade and supply chains.
It replaces the Income-tax (Amendment) Ordinance, 2026 while preserving actions already taken under it. The Bill also adds measures developed after representations received following the Finance Act, 2026.
No additional government expenditure is contemplated. Several operational details, including reporting formats, will be prescribed subsequently.
Electronic Payment Modes Can Be Updated Independently
Section 10A of the Payment and Settlement Systems Act already prohibits banks and payment-system providers from charging a person who makes or receives payments through prescribed electronic modes.
The Bill would remove the reference to electronic modes prescribed under the former Income-tax Act, 1961. Instead, the Central Government could notify eligible payment modes directly.
The substantive no-charge rule therefore remains. The change separates the identification of covered payment modes from income-tax legislation, allowing the list to be updated through notification.
Offshore Fund Conditions Are Significantly Relaxed
The Bill replaces the conditions under which activities conducted by an eligible fund manager do not create a business connection in India for an offshore investment fund.
The revised Schedule retains requirements that:
the fund must be non-resident and based in a treaty jurisdiction or another notified territory;
direct participation by Indian residents must generally not exceed 5% of the corpus;
the fund must not conduct or manage a business in India;
the fund manager must be independent, appropriately registered and operating in the ordinary course of business;
the manager and connected persons must not receive more than 20% of the fund’s profits from covered transactions; and
the fund must file prescribed information within 90 days after the tax year.
The Bill removes several existing conditions, including a minimum of 25 members, a ₹100 crore minimum corpus, investor-concentration limits, restrictions on investing in associates and a requirement concerning fund-manager remuneration.
The amendment is therefore more than a technical revision: it simplifies the safe-harbour conditions for offshore funds managed from India.
Exemptions Support Financial Markets, Electronics and Trade
The Bill adds exemptions for interest and capital gains from government securities earned by Foreign Institutional Investors and the Bank for International Settlements, subject to prescribed disclosure requirements.
For electronics and digital infrastructure, it:
extends until 2040–41 the exemption for foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers in customs bonded areas;
defines covered electronic goods to include mobile phones, computers, tablets, servers, specified sub-assemblies, hearables and wearables;
exempts eligible foreign companies’ income from storing and selling components through customs bonded warehouses for contract manufacturing until 2040–41; and
allows a specified data centre to be operated by an Indian company through either ownership or leasing, while removing the requirement to notify each eligible foreign company.
From 1 October 2026, eligible foreign diamond-mining companies, sightholders, brokers, aggregators and auction entities would also receive an exemption on income from rough-diamond sales conducted in notified special zones. This exemption runs until 31 March 2041.
Business Trust and SPV Tax Treatment Is Revised
The Bill allows a business-trust unit holder to retain the applicable dividend exemption even when the underlying special-purpose vehicle has opted for the new corporate-tax regime.
At the same time, it creates a separate surcharge rate for such SPVs. Domestic companies generally remain subject to a 10% surcharge under the relevant provisions, while specified SPVs would face a 25% surcharge — an increase of 15 percentage points. The change applies to both income-tax and advance-tax calculations covered by the Finance Act.
What Is a Customs Bonded Area?
A customs bonded area is an authorised warehouse where imported goods may be stored - and, under specified arrangements, used in manufacturing - under customs supervision without immediate payment of import duty.
Duty generally becomes payable when the goods are cleared into the domestic market. This can help manufacturers manage cash flows and bring imported components, machinery or inputs into a controlled production arrangement. Under this Bill, specified foreign companies storing electronic components in such warehouses for Indian contract manufacturers would receive a time-bound income-tax exemption, subject to prescribed reporting.
Policy Relevance
Separates payment regulation from tax legislation: Electronic payment modes covered by the no-charge rule can be updated through notification without amending income-tax law.
Makes India-based fund management more accessible: Removing corpus, investor-number and concentration conditions widens the range of offshore funds that may qualify for the business-connection safe harbour.
Preserves compliance safeguards: Residency, Indian participation, fund-manager independence and annual reporting requirements continue despite the relaxation.
Supports electronics supply chains: Long-duration exemptions cover foreign-owned production equipment and components stored for contract manufacturing in bonded areas.
Reduces barriers for data-centre arrangements: Allowing leased infrastructure provides greater flexibility than an ownership-only model.
Targets international financial and trading activity: Government-security and rough-diamond exemptions seek to attract specific cross-border transactions rather than offer broad tax reductions.
Balances the SPV dividend concession with a higher surcharge: The Bill expands relief for business-trust unit holders while increasing the surcharge applicable to specified SPVs entering the new tax regime.
Leaves implementation details to subordinate rules: Reporting formats and other prescribed conditions will influence how readily taxpayers can use the new exemptions.
Follow the Full Bill Here: Taxation and Other Laws (Amendment) Bill, 2026