Lok Sabha clears tax bill to boost electronics manufacturing, ease investment rules

New Delhi: The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, which proposes tax changes to promote domestic electronics manufacturing, make India more attractive to foreign cloud companies and investment funds, and empower the government to determine the future of the zero merchant discount rate (MDR) on digital payments.

The Bill, passed in the Lower House of Parliament by voice vote amid Opposition protests, replaces the Ordinance issued on June 5. The House cleared the measure without a debate.

The biggest tax incentive in the Bill is for the electronics manufacturing sector. Foreign companies that produce electronic products in India through local contract manufacturers will continue to receive income-tax exemption for 15 years through 2040-41. The incentive covers mobile phones, laptops, tablets, personal computers, servers and key components. The same incentive has been extended to the rough diamond industry as well.


The Bill also provides tax incentives for companies that support electronics production.

Foreign firms that store components in customs warehouses before supplying them to Indian manufacturers will get a 15-year income-tax exemption through 2040-41. The move aims to build a stronger domestic components ecosystem and encourage global companies to expand their India operations.

The proposed changes also make it easier for foreign cloud companies to set up and scale data centre operations in India. Companies using Indian data centres will no longer need additional approvals and notifications. They can also operate through leased facilities.

The Bill also simplifies tax rules for offshore fund managers looking to move operations to India. It removes several conditions under the existing regime and reduces the risk of overseas income being taxed in India.

The proposed changes could encourage private equity firms, master-feeder funds and other global funds to manage more activities from India.

"The recent proposals underline the government's commitment to continually shape India's tax policy in response to changing global investment patterns," said Sumit Singhania, partner at Deloitte India. "The extended tax holiday for electronic goods manufacturers and relaxed eligibility conditions for data centres should enable investors to commit long-term capital into these sectors."

The Bill also changes the framework for digital payments. It separates the Payment and Settlement Systems Act from the Income-tax Act and gives the Centre powers to notify which electronic payment modes must remain free.