India’s New Tax Bill: Attracting Global Capital & Boosting Manufacturing

The Indian government has introduced the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha. This legislative move aims to implement significant tax and regulatory reforms designed to attract foreign capital, bolster India’s manufacturing sector under the ‘Make in India’ initiative, and enhance the overall ease of doing business.

Reforming Fund Management and Investment Trusts

The Bill proposes critical amendments to several acts, including the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026. A key focus is simplifying rules for offshore investment funds managed from India, retaining only essential safeguards.

This simplification intends to encourage global fund managers to relocate to India without risking their overseas funds being treated as having a taxable presence in the country. This flexibility will apply across India, including within the International Financial Services Centre (IFSC).

Experts like Sameer Gupta, national tax leader at EY India, noted that these changes address long-standing investor demands regarding business trusts. The eligibility conditions for investment funds are also being reduced from thirteen to five, significantly enhancing India’s attractiveness as a fund management hub.

Furthermore, the Bill seeks to restore tax exemptions on dividends received by investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). This exemption will apply even if the underlying special purpose vehicle (SPV) has adopted the new tax regime.

To maintain revenue neutrality, an additional surcharge will be levied on such SPVs instead of directly taxing investors. This measure aims to protect small investors and stimulate investment in real estate and infrastructure sectors.

Enhancing Digital Infrastructure and Manufacturing Incentives

In a bid to attract more foreign investment in digital infrastructure, the Bill proposes removing separate government notification requirements for foreign cloud companies and Indian data centers. This change allows for leased data center models and limits compliance to a prescribed reporting requirement.

To strengthen domestic manufacturing, particularly in electronics, the Bill extends the existing tax exemption for foreign companies supplying machinery and tools to Indian electronics manufacturers. The exemption period is extended by 10 years, making the total exemption period 15 years, or until FY41.

• The electronic goods covered are clearly defined, including mobile phones, laptops, and servers, removing ambiguity.
• This clarity supports long-term investments in the electronics manufacturing sector.

Additionally, a full 15-year tax exemption is proposed for foreign companies storing electronic components in customs bonded warehouses for supply to domestic contract manufacturers. This new regime replaces the previous presumptive tax system.

Positioning India as a Global Diamond Hub

The proposed legislation also aims to position India as a prominent hub for the global rough diamond trade. It grants a 15-year tax exemption to foreign diamond miners and related entities.

This includes sightholders, brokers, aggregators, and tender and auction entities selling rough diamonds in notified special zones. The move is designed to attract significant players in the global diamond industry to India.

Key Numbers Driving Policy Changes

• 10 years: Extension of tax exemption for electronics machinery suppliers.
• 15 years: Total tax exemption period for electronics machinery suppliers.
• FY41: Fiscal year until which the electronics machinery supplier exemption is valid.
• 15 years: Tax exemption for foreign companies storing electronic components in bonded warehouses.
• 15 years: Tax exemption for foreign diamond miners and related entities.
• 13 to 5: Reduction in eligibility conditions for investment funds, as noted by EY India’s Sameer Gupta.