The Taxation and Other Laws (Amendment) Bill, 2026, introduces a number of provisions where the Government has used tax exemptions and relaxations to encourage foreign investment
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In India, the words tax laws and amendments cannot be separated from each other. When Parliament was not in session this year, the Government promulgated the Income-tax (Amendment) Ordinance, 2026 on June 5. This was necessitated because foreign portfolio investors withdrew a net ₹2,63,784 crore from Indian markets in the first five months of calendar 2026 — more than in all of the preceding year.The rupee had slid past ₹93 to the dollar and Brent crude had crossed $110. The Taxation and Other Laws (Amendment) Bill, 2026, introduces a number of provisions where the Government has used tax exemptions and relaxations to encourage foreign investment, manufacturing and financial activity in India. The Bill amends the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. Though the amendments cover different sectors, the common theme appears to be making India a more attractive destination for investment and business.Attracting foreign investmentsOne of the significant amendments relates to investment in government securities. With effect from April 2026, interest earned and capital gains arising from G-Secs will be exempt for eligible Foreign Institutional Investors and the Bank for International Settlements, subject to prescribed reporting requirements. An equally important amendment concerns offshore investment funds having fund managers in India. Under the existing provisions, an offshore fund has to satisfy a fairly long list of conditions to ensure that the presence of a fund manager in India does not create a business connection and consequently a tax exposure for the fund in India. The Bill proposes removing requirements relating to minimum number of investors, minimum fund corpus, concentration of investors, investments in associates and minimum remuneration of fund managers are proposed to be removed. The principal conditions that remain relate to the fund being a non-resident, being established in an eligible jurisdiction, restrictions on participation by Indian residents and the fund not carrying on a business in India. This amendment could encourage international fund houses to locate more of their fund-management operations in India without the fear of inadvertently creating an Indian tax presence.The exemption available to foreign companies supplying capital goods, equipment and tooling to Indian contract manufacturers is extended up to 2040-41. A new exemption is also proposed for foreign companies storing electronic components in customs bonded warehouses in India and supplying them to Indian contract manufacturers. The specified products include mobile phones, laptops, tablets, servers, wearables and related components. The data-centre provisions have also been liberalised. An Indian company need not necessarily own the data centre and can lease and operate it. The requirement for individual government notification of foreign companies and Indian data centres is also being relaxed.UPI fee?Income earned by eligible foreign diamond-mining companies, brokers, aggregators and auction entities from sale of rough diamonds in notified Special Zones will be exempt from tax. The exemption is proposed to operate from October 1, 2026 to March 31, 2041. Dividend income distributed through a business trust to unit holders will continue to remain exempt even where the underlying Special Purpose Vehicle opts for the new corporate tax regime. At the same time, the surcharge applicable to such SPVs under the new regime is increased.The Payment and Settlement Systems Act presently prohibits banks and payment-system providers from imposing charges on prescribed electronic payment modes. The Bill allows the Central Government to notify the electronic payment modes for which such charges cannot be imposed. This amendment by itself does not mean that UPI transactions will become chargeable. It merely gives the Government flexibility to determine which categories of electronic payments must continue to remain free.The impactThe amendments may appear unrelated — G-Secs, offshore funds, electronics, data centres, diamonds, REITs and UPI. Looked at together, however, there is a common thread. The Government is increasingly using taxation not merely as a mechanism for collecting revenue but also as an instrument of economic policy. The Bill seeks to attract global capital, bring fund-management activity into India, strengthen electronics manufacturing, encourage data-centre investment and establish India as a larger international trading centre. The success of these measures will ultimately depend not merely on the exemptions provided in the legislation but also on the simplicity of the rules, reporting requirements and implementation that follow.The writer is a chartered accountantPublished on August 12, 2026
