Reconfigured tax laws to help activate investments, boost manufacturing & foreign capital

New Delhi: The government is set to unveil a sweeping tax policy reset, extending incentives for manufacturing and relaxing rules for foreign investment funds through the proposed Taxation and Other Laws (Amendment) Bill, 2026.

The bill is likely to extend exemptions for contract manufacturing of "specified electronic goods" until 2040-41. Mobile phones, laptops, tablets, servers, wearables and related components are likely to be included in the list, people aware of the development told ET.

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Foreign companies storing electronic components in customs bonded warehouses could also benefit from tax relief until FY2040-41, a move aimed at strengthening supply chains and supporting India's ambitions as an electronics manufacturing hub.

The bill seeks to replace the Income Tax Ordinance of June, while relaxing several conditions viewed as hurdles for global fund managers, including requirements linked to investor numbers, minimum corpus, investment diversification and restrictions on investments in associate entities.

Making Sovereign Debt Attractive
It also proposes to provide tax exemption for interest income and capital gains from government securities held by foreign institutional investors and the Bank for International Settlements. The exemption is expected to improve the attractiveness of Indian sovereign debt instruments for international investors.

The bill proposes to restore tax exemption on dividend incomes of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

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The proposed amendments also seek to provide relief to India's growing digital infrastructure sector by easing tax rules for leased data centres operated by Indian companies. The bill proposes changes to the exemption relating to foreign companies procuring data centre services from specified data centres.

The requirement for the foreign company to be notified by the central government has been removed. The definition of a specified data centre has also been amended to include a data centre operated by an Indian company, whether through ownership or leasing, subject to prescribed conditions.

The bill proposes a long-term exemption for foreign companies involved in rough diamond sales through notified special zones, covering diamond mining companies, sightholders, brokers, aggregators and auction entities.

It proposes a higher 25% surcharge for special purpose vehicles (SPVs) opting for the new corporate tax regime, compared with 10% for other domestic companies.

The bill is likely to be tabled in Lok Sabha this week.

It proposes to delink zero charge electronic payments from a specific provision of the Income Tax Act. Instead, the Centre would have the power to notify eligible electronic payment modes directly under the Payment and Settlement Systems Act, allowing faster policy changes.

Experts said the exemption is expected to improve the attractiveness of Indian sovereign debt instruments for international investors.

"Taken together, the amendments reflect an effort to combine economic stability with investment facilitation," said Richa Sawhney, partner, tax, at Grant Thornton. "The measures are designed not only to address immediate challenges arising from global uncertainties, but also to provide a more predictable tax framework for businesses and investors operating in strategic sectors."