The proposed Taxation and Other Laws (Amendment) Bill, 2026, simplifies rules for offshore funds managed in India and extends tax exemptions for electronics and diamond trade until 2041. These measures aim to attract foreign capital and strengthen supply chains, though changes to business trust taxation will require investor attention.
The Indian government has introduced the Taxation and Other Laws (Amendment) Bill, 2026, aimed at replacing the June Ordinance with a more streamlined tax framework. For investors, the bill represents a strategic push to make India a more attractive hub for global investment funds and high-value manufacturing sectors.
Relaxing Rules for Offshore Funds
A major highlight of the bill is the simplification of tax rules for offshore investment funds that are managed from within India. Currently, such funds must meet strict requirements to avoid being classified as having a taxable business connection in the country. The proposed bill removes several hurdles, including minimum investor thresholds and restrictions on the size of the corpus. By eliminating these conditions, the government intends to make it easier for global asset managers to operate out of India, potentially increasing the inflow of foreign capital into the domestic markets.
Incentives for Manufacturing and Trade
The bill proposes significant tax incentives to encourage supply chain resilience in critical sectors. Foreign companies involved in the electronics supply chain that store and sell components through bonded areas for Indian contract manufacturers will be eligible for tax exemptions until March 31, 2041. This is designed to support the growth of domestic electronics manufacturing. Similarly, foreign entities participating in the rough diamond trade through notified special zones will also receive tax exemptions until 2041. Data centers will benefit from simplified rules, as the bill proposes removing the requirement for separate notifications for data center operators and foreign companies, while also extending eligibility to lease-based arrangements.
Impact on Business Trusts
The bill also addresses the tax treatment of business trusts, such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). A key proposal is to restore the tax exemption for dividend income earned by unit holders, regardless of whether the underlying Special Purpose Vehicle (SPV) opts for a concessional tax regime. However, investors in these trusts should note that the surcharge for SPVs choosing the concessional tax regime is set to rise from 10% to 25%. This increase in surcharge could impact the overall tax efficiency of SPVs within these structures.
Monitoring Next Steps
These proposals are currently part of a bill and await approval from the Indian Parliament. Investors and analysts will be watching for the final version of the legislation to see if any further adjustments are made during the debate process. The specific implementation of these rules, particularly the definitions for 'specified electronic goods' and the operational details for the new exemptions, will be key monitorables for companies in the manufacturing and infrastructure sectors. As the bill moves through the legislative process, market participants will likely assess how these changes influence corporate tax planning and foreign investment strategies in the coming quarters.