Finance Minister Nirmala Sitharaman on Tuesday introduced the 'Taxation and other Laws (Amendment) Bill, 2026' in the Lok Sabha to attract more foreign capital and promote domestic manufacturing by providing a "reliable policy and process certainty".
The Bill proposes to make it easier for fund managers to relocate to India without the foreign fund being treated as doing business in India.
It also seeks to extend income tax exemption available to foreign companies that provide machinery and tools to an Indian factory that makes specified electronic goods on its behalf under contract manufacturing till 2040-41.
Specified electronic items mentioned in the bill include mobile phones, laptops, personal computers, tablets, servers and their key parts and accessories.
To support component supply for electronics factories, the Bill proposes I-T exemption for 15 years till 2040-41 to foreign companies that store components in customs warehouses to further supply them to a contract manufacturer in India.
The Bill also removes the approval requirements for foreign cloud companies that use Indian data centres.
It also proposes that Indian data centres be run on a leased basis rather than only under direct ownership.
The proposals in the Bill share a single purpose of making India a more attractive and predictable place for global capital, manufacturing and business to come and stay, Finance Ministry sources said.
"India wants global investment funds, cloud businesses and infrastructure investors to route more of their activity through the country. The common thread is to provide reliable policy and process certainty," the ministry said.
The Bill also seeks to amend the Payment and Settlement Systems Act, 2007, to remove the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes.
Key proposals of the Bill
Attracting local fund managers:
To attract foreign capital, the Bill proposes to make it easier to bring fund managers to India. Global investment funds are run by skilled fund managers, and until now, a long list of conditions discouraged those managers from basing themselves in India for fear that doing so might make the entire foreign fund taxable here.
The Bill cuts this list of conditions, keeping only what is essential to prevent misuse and round tripping of money by Indian residents.
"The expectation is that many managers of global funds will move to India, bringing high value activity and jobs with them. This proposal will apply to the entire of India, including the International Financial Services Centre to provide flexibility of location to the fund managers," the ministry sources said.
Data Centres:
The Bill proposes clearer, simpler rules for data centres. Foreign cloud companies that use Indian data centres were earlier promised a tax exemption, but with conditions of clearing several layers of government approval.
The proposed Bill removes these approval requirements and also allows Indian data centres to be run on a leased basis rather than only under direct ownership.
"The result is a much larger and more flexible ecosystem of Indian data centres serving global cloud players. This reform is expected to help India build large 'AI data cities' and attract significant investment into them," sources said.
Relief for investors in business trusts:
In a relief for investors in business trusts, the Bill proposes that investors in REITs and InvITs continue to receive their dividends tax-free even after the operating company shifts to the new Income Tax regime. To keep the change revenue neutral, a modest additional charge is levied at the level of the operating company rather than on the investor.
"This protects small investors and gives a further push to investment in real estate and infrastructure," according to sources.
Electronics manufacturing:
To strengthen India as a manufacturing base, especially for electronics, and encourage global companies to bring in equipment, components and materials, the Bill proposes extending tax exemption to foreign companies that engage contract manufacturers in electronics. The exemption, which is currently available for 5 years, has been extended by 10 years to 2040-41.
Also supporting component supply for electronics factories, the Bill proposes to fully exempt foreign companies that store such components in Indian warehouses to supply them to local contract manufacturers from income tax for 15 years.
Amendment to Payment and Settlement Systems Act, 2007:
The amendment seeks to remove the existing legal provision that prevents banks and payment service providers from levying a charge (MDR) on notified electronic payment modes.
The Bill seeks to make relevant changes in Section 10A of the Payment and Settlement Systems Act, 2007, and Section 269SU of the Income Tax Act, which requires large businesses with a turnover exceeding Rs 50 crore to accept payments through specific electronic modes, including RuPay debit cards and BHIM-UPI QR codes.
As on date, no bank or payment system provider could impose any charge upon anyone, either directly or indirectly, for using the electronic modes of payment prescribed under section 269SU of the Income Tax Act, 1961.
The Bill proposes expanding the scope of what could be notified under the modes of payment that attract no charge.
(With inputs from PTI)