Govt unveils tax overhaul to woo global investors, boost manufacturing

New Delhi: Finance minister Nirmala Sitharaman has introduced a Bill to amend India's tax laws to attract more foreign investment, support electronics manufacturing, encourage investment in AI and cloud infrastructure, and strengthen the country's position as a trading hub for rough diamonds.

The Taxation and Other Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on Tuesday. It will now be taken up for consideration and passage in Parliament.

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The Bill proposes easing of rules governing offshore investment funds managed from India and makes it easier for skilled global fund managers to operate from this country by removing most of the onerous conditions and retaining only safeguards against abuse and round-tripping.

Extant provisions require foreign funds to meet a long list of conditions relating to investor concentration, corpus size and investment patterns.

Also, global fund managers have been wary of operating from India, fearing that such a move could make the entire foreign fund taxable here.

The Bill places fund managers operating from the International Financial Services Centre in Gujarat-a deemed foreign territory-on a par with those from the rest of India.

Also Read: Taxation laws amendment bill tabled in Lok Sabha: What the new tax bill changes for foreign investors

"This is expected to encourage global asset managers to relocate portfolio management and investment decision-making to India, creating high-value financial services jobs while expanding the country's fund management ecosystem," a finance ministry official told ET.

To support electronics manufacturing, the Bill seeks to extend by ten years tax exemption on foreign-owned tooling and machinery supplied to Indian contract manufacturers. The exemption would be valid until FY41, giving multinational companies a longer-term horizon for investment planning.

The manufacturing of products eligible for the relief includes mobile phones, laptops, personal computers, tablets, servers and their components.

Another key suggestion is that foreign companies supplying components from customs-bonded warehouses to Indian contract manufacturers should receive full tax exemption for 15 years, replacing the existing presumptive taxation framework.

The proposed change, officials said, is intended to encourage multinational suppliers to maintain inventory in India, enabling just-in-time manufacturing. This will boost the country's attractiveness vis-a-vis Asian manufacturing peers.

"The relaxation of offshore fund rules could substantially strengthen India's fund management ecosystem by encouraging global investment managers to relocate operations," said Abheet Sachdeva, partner, Nangia Global. The Bill also seeks to expand India's role in the global diamond trade. Foreign mining companies, sight-holders, brokers, aggregators and auction houses selling rough diamonds through notified special zones in India will receive a 15-year income tax exemption until March 2041.

The proposal aims to shift a larger share of global trading activity to India while building a financing ecosystem around the business.

Digital infrastructure is another major beneficiary. The Bill also seeks to remove multiple approval requirements for foreign cloud companies using Indian data centres. It also allows data centres to operate on leased facilities, rather than through direct ownership alone. Compliance will be reduced to the prescribed reporting requirements, a change officials say could accelerate investment in large AI data centres.

The Bill says dividend income distributed through business trusts will remain exempt in the hands of investors even if the underlying operating company shifts to the concessional corporate tax regime.

Nangia Global's Sachdeva cautioned that the proposed exemption for dividend income distributed by business trusts is not accompanied by corresponding changes in withholding tax provisions. Unless clarified, non-resident investors may continue to suffer tax deduction at source on exempt income and may have to seek refunds through tax returns, he said.

The government, on the other hand, says the measure protects retail investors while preserving the attractiveness of real estate and infrastructure investment trusts.

The Bill also proposes tax exemptions for interest income and capital gains earned by eligible foreign institutional investors and the Bank for International Settlements on government securities, giving statutory backing to provisions introduced through an ordinance earlier this year.

It also suggests easing the safe harbour requirements, which experts say is a step towards enhancing India's appeal as a fund management jurisdiction. Of the original 13 conditions to qualify as an eligible investment fund, now only five remain.

Tax experts said the reforms represent a shift towards providing long-term policy certainty instead of announcing incremental tax incentives.

"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," said Sameer Gupta, national tax leader, EY India.