The government has introduced the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha to boost foreign investment. The bill offers tax incentives for electronics, data centres, and diamond trading, while relaxing rules for offshore funds in GIFT City. It also addresses regulatory flexibility for electronic payment systems.
The Government of India introduced the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha on August 4, 2026. This legislation aims to simplify the regulatory environment and attract global capital by offering targeted tax relief across key sectors, including electronics manufacturing, offshore fund management, and the diamond trade. The new bill replaces the Income-tax (Amendment) Ordinance issued earlier in June 2026.
Incentives for Electronics and Data Centres
To bolster India's electronics manufacturing ecosystem, the bill proposes extending tax exemptions for foreign companies supplying capital goods and tooling to local contract manufacturers until March 31, 2041. Additionally, the government has introduced tax benefits for component suppliers who store inputs in customs-bonded warehouses, a move designed to support just-in-time delivery for manufacturers. For the data centre industry, the legislation streamlines operational rules by allowing facilities to function on a leased basis, removing previous requirements that often mandated direct ownership. These changes are intended to reduce entry barriers for global technology players looking to establish or expand their presence in India.
Offshore Funds and GIFT City
Attracting global fund managers remains a priority, and the bill seeks to simplify the criteria for what constitutes an 'Eligible Investment Fund.' By removing rigid conditions—such as minimum corpus requirements and investor count limits—the government hopes to encourage more offshore funds to relocate their operations to India and the GIFT City financial hub. This shift is aimed at creating a more flexible framework that reduces the tax burden on funds managed from within the country.
Tax Relief for the Diamond Trade
In a move to stimulate the diamond sector, the bill introduces a 15-year tax holiday for specified foreign companies operating in notified special economic zones. This exemption is set to remain in effect until March 31, 2041, providing long-term predictability for international miners and traders involved in selling precious stones within these designated areas.
Updates to Payment Regulations
Beyond tax reforms, the legislation amends the Payment and Settlement Systems Act, 2007. The amendment grants the government greater flexibility to notify specific electronic payment modes that are exempt from merchant charges. This update is significant for the digital payments ecosystem, as it addresses long-standing concerns regarding the financial burden of the zero-Merchant Discount Rate (MDR) regime on payment service providers and banks.
Risks and Monitorables
While the bill aims to improve the ease of doing business, market participants will likely track the finer details of its implementation. A key area of concern involves the potential impact on banks and payment providers, as the flexibility regarding MDR charges could lead to operational or profitability pressures if not balanced carefully. Furthermore, investors may remain cautious regarding potential interpretational disputes concerning the eligibility criteria for 'specified electronic goods' or the definition of 'foreign control' under new RBI guidelines. The final impact of these reforms will depend on the clarity of the underlying rules and how effectively they are integrated with existing regulatory frameworks.