The Taxation and Other Laws (Amendment) Bill, 2026 proposes a series of significant amendments to the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. The measures are aimed at providing greater tax certainty, promoting fund-management activity in India, supporting electronics manufacturing and the diamond industry, and replacing the Income-tax (Amendment) Ordinance, 2026 with legislation enacted by Parliament. 

The Bill, introduced as Bill No. 150 of 2026, states that, save as otherwise provided, the legislation shall be deemed to have come into force from April 1, 2026. It was proposed against the backdrop of continuing global economic uncertainty, geopolitical developments and disruptions to international trade and supply chains. 

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No Charges on Notified Electronic Payment Modes

One of the important amendments concerns the Payment and Settlement Systems Act, 2007.

The Bill proposes to amend Section 10A by replacing the existing reference to electronic modes of payment prescribed under Section 269SU of the Income-tax Act, 1961. In its place, the provision would refer to one or more electronic modes of payment that may be specified by the Central Government through notification. 

The proposed amendment is intended to ensure that banks and system providers cannot impose charges, directly or indirectly, on persons making or receiving payments through electronic modes notified by the Central Government.

The explanatory memorandum specifically states that the amendment is intended to remove the existing reference to the Income-tax Act and provide that no bank or system provider shall impose any charge on such electronic payments. 

Relaxation of Conditions for Eligible Investment Funds

The Bill proposes to substitute Schedule I of the Income-tax Act, 2025, which lays down the conditions under which certain activities of eligible investment funds would not constitute a business connection in India.

The stated objective is to rationalise the conditions applicable to eligible investment funds and eligible fund managers, with a view to promoting fund-management activity and providing greater tax certainty. 

Under the proposed Schedule, an eligible investment fund would generally have to be established, incorporated or registered outside India and must not be a person resident in India. It must also satisfy prescribed conditions concerning its residence, Indian participation, business activities and fund management arrangements.

The aggregate participation or investment directly by Indian residents would generally remain capped at 5% of the fund’s corpus, measured on April 1 and October 1 of the tax year. However, a contribution of up to ₹25 crore by the eligible fund manager during the first three years of operation would be excluded for this calculation. Where the 5% threshold is exceeded on the relevant date, the condition can be treated as satisfied if it is restored within four months. 

The proposed framework also requires the fund manager to be independent of the eligible investment fund in the specified manner, to be registered as a fund manager or investment adviser under applicable regulations and to act in the ordinary course of its fund-management business.

The fund manager, along with connected persons, would also be restricted from becoming entitled to more than 20% of the profits accruing to the eligible investment fund from transactions carried out through the fund manager. 

Eligible investment funds would additionally be required to furnish prescribed information to the income-tax authority within 90 days from the end of the tax year. 

Special flexibility for IFSC fund managers

The proposed framework also gives the Central Government power to relax or modify specified conditions where an eligible fund manager is located in an International Financial Services Centre (IFSC) and commenced operations on or before March 31, 2030. 

This provision is significant for India’s efforts to develop international fund-management and financial-services activity through IFSC structures.

Tax Exemption for Government Securities Held by Foreign Institutional Investors and BIS

The Bill proposes to insert two new entries, Serial Nos. 13D and 13E, into Schedule IV of the Income-tax Act, 2025.

Under the proposed provisions, income comprising interest on Government securities and capital gains arising from the sale, exchange or transfer of Government securities would not be included in the total income of eligible persons.

Serial No. 13D covers a Foreign Institutional Investor, while Serial No. 13E covers the Bank for International Settlements (BIS). The exemptions would be subject to furnishing information in the prescribed form and manner. 

The Bill’s financial memorandum explains that these provisions are specifically intended to provide tax exemption for both interest income and capital gains from Government securities in the hands of these entities. 

15-Year Tax Exemption Proposed for Rough Diamond Sales

A major sector-specific proposal concerns the international diamond industry.

The Bill proposes to introduce Serial No. 13F in Schedule IV, providing exemption for income from the sale of rough diamonds in the hands of specified foreign companies.

The eligible entities would include foreign companies:

• engaged in the business of diamond mining;
• functioning as a sightholder of a diamond-mining company; or
• acting as a broker, aggregator, tender or auction entity connected with the sale of rough diamonds.

The exemption would apply where the sale of rough diamonds is carried out in a notified special zone referred to in Section 9(9)(c)(ii)(C). The foreign company would also be required to maintain and furnish prescribed information. 

Importantly, the proposed exemption would remain available until the tax year ending March 31, 2041, effectively providing a 15-year tax window. 

The Bill also defines a “rough diamond” for this purpose as a diamond that is unworked or simply sawn, cleaved or bruted, falling under specified Customs Tariff headings and accompanied by a Kimberley Process Certificate. 

Tax Relief for Foreign Companies Supporting Electronics Manufacturing

Another significant proposal is directed towards global electronics supply chains.

The Bill introduces Serial No. 13G in Schedule IV to provide an exemption for income accruing or arising from the storage of components in a warehouse in a custom bonded area.

The provision targets a foreign company that stores components in such a warehouse for supplying them to a contract manufacturer for manufacturing specified electronic goods. 

The exemption would be subject to prescribed conditions, including requirements concerning the sale of components and manufacturing activities. Like the rough-diamond exemption, the proposed benefit would remain available until the tax year ending March 31, 2041. 

A “contract manufacturer” is proposed to mean an Indian company producing specified electronic goods on behalf of a foreign company in a custom bonded area.

The term specified electronic goods has also been expressly defined to cover:

• mobile phones;
• laptops, all-in-one personal computers and tablets;
• servers and ultra small form factor systems;
• sub-assemblies of these products; and
• hearables, wearables and related accessories. 

The proposal therefore seeks to create a tax framework covering a broad portion of the electronics manufacturing ecosystem.

Existing Electronics Manufacturing Incentive Extended to 2040-41

The Bill also proposes changes to Serial No. 13A of Schedule IV.

Under the proposed amendment, the contract manufacturer would be required to produce specified electronic goods on behalf of the foreign company for consideration. More importantly, the existing exemption period would be extended from the tax year 2030-31 to 2040-41. 

The explanatory memorandum describes the amendment as intended to provide a longer exemption period and greater certainty to the sector. 

The change is particularly relevant because the legislation expressly links the incentive to electronics manufacturing in India and contract-manufacturing arrangements.

Data Centre Rules Relaxed to Facilitate Ease of Doing Business

The Bill also proposes amendments concerning income derived by foreign companies from procuring services from specified data centres.

Under the existing provision reproduced in the Bill, the foreign company had to be notified by the Central Government and the specified data centre had to meet particular conditions, including ownership and operation by an Indian company. 

The proposed amendment removes the requirement for notification of the foreign company and modifies the definition of a specified data centre to recognise a data centre operated by an Indian company either by way of ownership or leasing, subject to prescribed conditions. 

The proposal is expressly described in the memorandum as a measure for ease of doing business.

Business Trust Dividend Exemption Provision Modified

The Bill also proposes an amendment to Schedule V concerning income distributed by business trusts to unit holders.

At present, the provision reproduced in the Bill restricts exemption where the distributed income is of the same nature as interest received from a special purpose vehicle, dividend received from a special purpose vehicle where the SPV has exercised the option under Section 200, or certain rental or leasing income of a real estate investment trust. 

The Bill proposes to omit clause (b) in Serial No. 5. According to the explanatory memorandum, the change is intended to provide exemption on dividend received by a unit holder even where the special purpose vehicle of the business trust has exercised the option under Section 200 to move to the new tax regime. 

15% Additional Surcharge for Certain SPVs Opting for New Tax Regime

Correspondingly, the Bill proposes amendments to Section 3 of the Finance Act, 2026.

The amendment creates a separate surcharge treatment for domestic companies that are special purpose vehicles referred to in Schedule V.

Under the proposed table, ordinary domestic companies other than such special purpose vehicles would continue to have a 10% surcharge, whereas a domestic company constituting an SPV referred to in Schedule V would attract a 25% surcharge. 

The explanatory memorandum states that this amounts to an additional surcharge of 15% on the special purpose vehicle where it moves to the new tax regime. 

The same revised rates are proposed in relation to the calculation of advance tax. The extracted Finance Act provisions show the existing 10% rate for every domestic company, which the Bill proposes to restructure by distinguishing specified SPVs. 

Ordinance to Be Replaced by Act of Parliament

A key legislative objective of the Bill is to replace the Income-tax (Amendment) Ordinance, 2026, which was promulgated by the President on June 5, 2026 when Parliament was not in session.

The Statement of Objects and Reasons explains that the Ordinance was introduced in response to global economic uncertainty and disruptions in international trade and supply chains. The Government subsequently concluded that additional taxation measures were necessary and that the measures should be incorporated into a Bill before Parliament. 

Clause 7 of the Bill therefore repeals the Ordinance while preserving actions already taken under it. Anything done or any action taken under the Ordinance would be deemed to have been done or taken under the corresponding provisions of the new Act. 

No Additional Government Expenditure Envisaged

The Financial Memorandum states that the proposed legislation does not contemplate any additional expenditure.

The amendments concern statutes administered by the Central Board of Direct Taxes under the Department of Revenue, as well as the Payment and Settlement Systems Act administered by the Department of Financial Services. 

Key Takeaways

The Taxation and Other Laws (Amendment) Bill, 2026 represents a broad package of tax and regulatory changes rather than a single-rate tax amendment. Its major proposals include:

Overall, the Bill seeks to combine tax certainty, sector-specific incentives and ease-of-doing-business measures with targeted changes to the taxation of investment funds, business trusts and special purpose vehicles. The Government’s stated rationale is to respond to changing global economic conditions while supporting sectors such as electronics manufacturing, diamonds, data centres and international financial services. 

Important: The uploaded document is titled “The Taxation and Other Laws (Amendment) Bill, 2026” and identifies itself as a Bill introduced in the Lok Sabha, rather than an enacted Act. The article above is therefore based on the provisions and explanatory material contained in that uploaded Bill.

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