Taxation and Other Laws Bill aims to woo more FDI, boost manufacturing

New Delhi: The Taxation and Other Laws (Amendment) Bill, 2026, introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha on Tuesday, aims to attract more foreign capital in the country, strengthen the manufacturing sector and facilitate the ease of doing business in the country.

The Bill seeks to woo 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. Overseas players are often unsure whether operating in or through India will create an unexpected tax exposure. These proposals give clear, stable, and predictable tax treatment as well the process to get the desired tax treatment, a senior official said.

Running through the whole Bill is a consistent effort to make dealing with the tax system simpler and less burdensome, he added.

In order to make it easier to bring fund managers to India, the Bill sharply cuts down the list of eligibility conditions they have to meet, keeping only what is essential to prevent misuse and round tripping of money by Indian residents. It provides for fund managers to relocate to India without the foreign fund being treated as doing business in India. The Bill also restores the tax exemption for investors in business trusts (REITs and InvITs) to boost investments in real estate and infrastructure through operating companies. Besides, it eases rules for data centres to woo foreign cloud companies in order to help India build large "AI data cities" and attract significant investment into them, the official said.

A second cluster of proposals in the Bill is aimed squarely at strengthening India as a manufacturing base, especially for electronics, and at deepening the supply chains that support it. Global companies bring in equipment, components and materials to have goods made in India. These measures give them the long-term certainty they need to commit.

When a foreign company supplied machinery and tooling to an Indian factory that makes electronics on its behalf, its income from doing so was made tax-free. The time limit was set at five years. The Bill extends this exemption by another ten years, giving a much longer horizon of certainty. It also clearly defines the electronic goods covered under the provisions, such as mobile phones, laptops, personal computers, tablets, servers and their key parts and accessories. This would also remove any ambiguity. This is expected to expand the contract manufacturing ecosystem for these products in India, the official said.

The Bill has a provision for supporting component supply for electronics factories. Foreign companies that store such components in Indian bonded warehouses, to supply them to local contract manufacturers, were given a safe harbour treatment to pay tax on a small presumptive margin of 2 per cent.

It was felt that a cleaner solution would fully exempt the said activity from tax in India so that it is more competitive than what the competing countries offer. The Bill therefore fully exempts this income for 15 years. This, too, is expected to strengthen the manufacturing ecosystem for phones, laptops, computers and servers, the official said.

With an eye on bringing the rough diamond trade to India, the Bill allows foreign diamond miners who are until now allowed only to display rough diamonds in special zones in Mumbai and Surat without being taxed merely for showing them. To turn display into actual trade, the Bill goes further and fully exempts the income of foreign diamond miners and the traders connected with them from selling rough diamonds in these zones, for a period of fifteen years, he added.