Government Introduces Taxation and Other Laws (Amendment) Bill, 2026

Economy · 9 August 2026 · Based on The Hindu (original report)

2-minute summary

The Union Finance Minister introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha to enhance ease of doing business, attract foreign direct investment (FDI), and support the 'Make in India' initiative. The Bill amends three key statutes: the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025, and the Finance Act, 2026. Key provisions include extending income tax exemptions for foreign companies supplying capital goods, machinery, and tooling to Indian electronics manufacturers from 5 years to 15 years (up to 2040-41), while explicitly listing covered products like laptops, servers, and wearables. For cloud infrastructure, the Bill eliminates multi-layered approval steps for foreign companies using Indian data centres and allows data centres to operate on a leased model. Additionally, it eases residency rules for foreign fund managers moving to India without making foreign funds taxable locally. Finally, it restores tax-free dividend benefits for REIT and InvIT investors across tax regimes by shifting a minor levy to operating companies.

Why it's in the news

Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha. The proposed legislation seeks to reform direct tax provisions and administrative procedures to foster FDI, expand electronics manufacturing, and modernize India's capital market frameworks.

Background and context

India's policy framework has increasingly targeted structural tax and procedural reforms to attract long-term global capital and build strong domestic supply chains. While initiatives like 'Make in India' and Production Linked Incentive (PLI) schemes accelerated domestic electronics assembly, reliance on imported high-end tooling equipment required favorable tax treatment for foreign suppliers. Simultaneously, global cloud service providers faced complex regulatory notifications when utilizing Indian data centre infrastructure. Moreover, international fund managers managing offshore funds hesitated to relocate to India due to potential tax liabilities arising from establishing a business connection in the country. Additionally, recent shifts toward new corporate tax regimes created unintended tax friction for dividend distributions by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The 2026 Amendment Bill addresses these administrative barriers to reinforce tax predictability.

Constitutional provisions

• Article 110 — Defines Money Bills, under which statutory provisions dealing with the imposition, abolition, remission, alteration, or regulation of any tax are introduced in Parliament.
• Article 265 — Mandates that no tax shall be levied or collected except by authority of law, providing the legal foundation for tax amendments.

Government schemes

• Make in India — Aims to transform India into a global manufacturing hub by encouraging domestic production and foreign capital goods investment.
• Production Linked Incentive (PLI) Scheme — Complements tax exemptions by providing financial incentives for domestic electronics and hardware manufacturing.

Mains practice: Predictability and simplification in taxation are vital pillars for driving foreign direct investment and domestic manufacturing. Discuss in the context of recent amendments to Indian tax laws.

Taxation policy plays a decisive role in shaping investor sentiment and international competitiveness. Predictable tax regimes reduce compliance burdens, lower capital expenditures, and spur long-term capital formation.

Key Measures in Recent Amendments to Boost FDI and Manufacturing:

• Extension of Capital Goods Tax Holidays: Tax exemptions for foreign suppliers providing tooling and capital equipment to domestic electronics factories have been extended to 2040-41. This reduces setup costs for advanced hardware like laptops, servers, and wearables.

• Ease of Cloud and Data Centre Operations: Eliminating multi-layered government approvals for foreign cloud service providers using Indian data centres—and allowing leased operational models—encourages high-capacity infrastructure buildout.

• Attracting Onshore Asset Management: Restructuring tax conditions for fund managers allows foreign fund managers to relocate to India without subjecting offshore funds to local business connection taxation, retaining talent and generating high-value jobs.

• Investor Protection in Real Estate and Infrastructure: Restoring tax-exempt dividend status for REIT and InvIT investors under both corporate tax regimes safeguards retail participation while keeping the policy revenue-neutral through minor entity-level levies.

Significance for the Economy:

These reforms promote ease of doing business, reduce regulatory litigation, and align Indian tax practices with international standards, accelerating the transition from assembly to deep-tier manufacturing.

Conclusion:

By removing red tape and establishing structural tax certainty, India enhances its position as a preferred destination for global capital, aligning tax administration with sustainable economic growth.

Prelims practice questions

Q1. Regarding the Taxation and Other Laws (Amendment) Bill, 2026, consider the following statements: 1. It extends tax exemptions for foreign suppliers of capital equipment to domestic electronics manufacturers up to 2040-41. 2. It permits Indian data centres to operate on a leased basis while eliminating multi-layered approvals for foreign cloud providers. 3. It imposes a dividend tax directly on retail investors of REITs and InvITs operating under the new tax regime. Which of the statements given above are correct?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2 and 3

Answer: A. Statements 1 and 2 are correct. Statement 3 is incorrect because the Bill restores dividend tax exemptions for investors in REITs and InvITs, keeping the change revenue-neutral by applying a modest charge at the operating company level rather than taxing retail investors.

Q2. Which of the following Acts is NOT among those amended by the Taxation and Other Laws (Amendment) Bill, 2026?

1. Finance Act, 2026
2. Payment and Settlement Systems Act, 2007
3. Foreign Exchange Management Act, 1999
4. Income-tax Act, 2025

Answer: C. The Taxation and Other Laws (Amendment) Bill, 2026 explicitly amends the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025, and the Finance Act, 2026. The Foreign Exchange Management Act (FEMA) is not amended by this Bill.

Q3. How does the Taxation and Other Laws (Amendment) Bill, 2026 address global fund managers relocating to India?

1. It retains essential anti-roundtripping rules while ensuring foreign funds are not treated as doing business in India solely due to manager relocation.
2. It levies a mandatory local surcharge on foreign investment funds.
3. It requires all offshore funds to register as domestic partnership firms.
4. It completely exempts foreign fund managers from domestic personal income tax.

Answer: A. The Bill slashes the restrictive list of conditions for fund managers, retaining only those aimed at preventing tax misuse and roundtripping. Under these rules, fund managers can relocate to India without triggering local business tax liabilities for the foreign fund itself.

Revision flashcards

• What is the primary objective of the Taxation and Other Laws (Amendment) Bill, 2026? To amend key financial laws to ease doing business, attract foreign direct investment (FDI), and bolster domestic manufacturing.
• Which three Acts are amended by the Taxation and Other Laws (Amendment) Bill, 2026? 1. Payment and Settlement Systems Act, 2007 2. Income-tax Act, 2025 3. Finance Act, 2026
• What tax relief is provided to capital goods suppliers for electronics manufacturing under the Bill? Income tax exemption for foreign suppliers of tooling and machinery to Indian electronics factories is extended from 5 years to 15 years (until 2040-41).
• How does the 2026 Bill streamline operations for cloud providers and data centres? It removes multi-layer government approval requirements for foreign cloud companies using Indian data centres and allows data centres to operate on a leased basis.
• How are REIT and InvIT investors affected by the new legislative changes (as of August 2026)? Tax-free dividend status for investors is restored across tax regimes, shifting the modest tax adjustment to the operating company level to protect small investors.