Tag: India tax reform

  • India Passes 2026 Tax Amendment Bill: Incentives for Foreign Investors, Electronics, and Data Centers

    India Passes 2026 Tax Amendment Bill: Incentives for Foreign Investors, Electronics, and Data Centers

    The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing a series of changes designed to attract foreign investment, strengthen India’s electronics manufacturing ecosystem, and create a more flexible framework for digital payments.

    The Bill amends provisions in the Income-tax Act, 2025, the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007. It also replaces the Income-tax (Amendment) Ordinance, 2026. While much of the attention has focused on the possibility of future charges on UPI transactions, the legislation also includes tax incentives for foreign investors, data centres, electronics manufacturing, and the diamond industry.

    FDI, Electronics and Data Centres Get Tax Boost

    One of the Bill’s key features is the extension of tax incentives for foreign companies involved in electronics manufacturing. Eligible overseas firms supplying components through bonded warehouses to Indian manufacturers will continue to receive tax benefits until March 31, 2041. The legislation also eases tax rules for foreign-owned data centres by removing certain notification requirements and expanding eligibility to leased facilities, a move expected to encourage investment in India’s fast-growing digital infrastructure sector.

    Additionally, foreign institutional investors (FIIs) and the Bank for International Settlements (BIS) will receive tax relief on interest income and capital gains from investments in government securities, a measure aimed at attracting more global capital.

    UPI Provision Creates Flexibility, Not Immediate Charges

    The new provision in the Payment and Settlement Systems Act has attracted considerable attention since it gives the central government the discretion to determine which digital modes of payment will not incur any charges. However, the Bill does not immediately introduce any charges on UPI or reinstate the merchant discount rate (MDR). It provides the necessary provisions for the government to bring about such changes at a later point if needed, through a separate government notification.

    What It Means for Businesses and Investors

    The bill is expected to support various industries through reduced tax uncertainty and long-term policies. The manufacturing industry, cloud service providers, international investment firms, and companies working in special economic sectors can be provided with incentives for expanding their businesses in India. These changes might boost India’s status as an ideal place to manufacture goods, build digital infrastructure, and invest, creating jobs in the long run.

    Consumers will not directly experience any changes since no digital payments taxes have been announced. The bill provides the government with enough room for more flexible policies and the continued execution of its tax reforms and industry growth approach. Businesses and investors should watch for further amendments through regulations and notifications.

  • India Unveils Tax Reforms to Lure Offshore Fund Managers and Boost Foreign Investment

    India Unveils Tax Reforms to Lure Offshore Fund Managers and Boost Foreign Investment

    India has proposed significant tax reforms aimed at easing rules for offshore funds managed by Indian-based managers, as part of the Taxation and Other Laws Amendment Bill, 2026. The government says the changes seek to promote fund management activity and provide tax certainty, in a bid to attract foreign capital after recent overseas outflows and rupee pressure.

    The draft bill removes eight of the existing 13 safe harbour conditions, including minimum corpus tests, investor thresholds, ownership caps, and portfolio restrictions. Funds can now appoint India-based managers without triggering a taxable business connection solely through that arrangement. However, five safeguards remain: Indian residents cannot directly hold more than 5% of a fund’s corpus, the fund must remain non-resident, and it cannot control an Indian business.

    Girish Vanvari of Transaction Square noted that the proposal substantially reduces the risk of a taxable connection. Nehal Sampat, a PricewaterhouseCoopers partner, said the measure would help offshore funds hire onshore managers. EY India’s Tejas Desai added that the changes offer more flexibility for global structures. The reforms also support India’s broader push to bring more fund management activity onshore, aligning with Finance Minister Nirmala Sitharaman’s call for more foreign capital.

    In addition, the bill extends tax incentives for electronics contract manufacturing, granting a ten-year extension to the existing five-year exemption through 2040-41. Foreign companies supplying capital goods to Indian electronics manufacturers can use the exemption, and certain component sales through customs-bonded areas qualify. Specified foreign firms trading rough diamonds in notified special zones receive a 15-year tax holiday. Simpler rules for data centres allow eligible facilities to operate through ownership or leasing, reducing procedural steps.

    The bill also replaces a June ordinance for foreign portfolio investors in government securities, exempting qualifying interest income and capital gains from Indian tax. The government circulated the draft among lawmakers and may introduce it in Parliament this week; measures require parliamentary approval before taking effect.