Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha with a series of proposed tax and legal changes aimed at making India a more attractive destination for global investment, domestic manufacturing and digital infrastructure. The proposed legislation focuses on providing greater policy certainty, easing compliance requirements and encouraging long-term investments across sectors including electronics manufacturing, data centres, real estate and financial services. 
One of the key proposals seeks to simplify the tax framework for foreign investment funds by making it easier for fund managers to relocate to India without the foreign fund being treated as carrying on business in the country. The government has proposed reducing the number of conditions applicable under the existing framework while retaining safeguards to prevent misuse and round-tripping of funds by Indian residents. 
According to Finance Ministry sources, the revised framework is expected to encourage more global investment fund managers to establish operations in India, bringing high-value financial services, skilled employment and greater flexibility. The proposal would apply across the country, including the International Financial Services Centre (IFSC), allowing fund managers to choose their preferred operating location. 
The Bill also proposes extending the income tax exemption available to foreign companies that supply machinery and tools to Indian contract manufacturers producing specified electronic products. The benefit, currently available for a limited period, has been proposed to continue until the financial year 2040-41. 
The list of eligible electronic products includes mobile phones, laptops, personal computers, tablets, servers and their major components and accessories. The government believes the extension will support India's position as a global electronics manufacturing hub while encouraging multinational companies to expand their manufacturing partnerships in the country. 
In another measure supporting the electronics supply chain, the Bill proposes a 15-year income tax exemption, extending until the financial year 2040-41, for foreign companies that store electronic components in customs warehouses before supplying them to Indian contract manufacturers. The move is intended to improve the availability of components and strengthen domestic manufacturing operations. 
The proposed legislation also introduces changes for India's growing data centre sector. It seeks to remove existing government approval requirements for foreign cloud service providers using Indian data centres. In addition, the Bill proposes allowing Indian data centres to operate on leased infrastructure instead of restricting operations only to directly owned facilities. 
Finance Ministry sources said these changes are expected to create a more flexible ecosystem for global cloud companies and support the development of large AI-focused data centre clusters in India. The government expects the reforms to encourage fresh investments in digital infrastructure, which has emerged as a major focus area amid rising demand for cloud computing and artificial intelligence. 
The Bill further proposes relief for investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Under the proposed amendment, investors would continue receiving tax-free dividend income even if the underlying operating company shifts to the new income tax regime. 
To maintain revenue neutrality, the government has proposed levying a modest additional tax at the operating company level instead of taxing investors. According to the Finance Ministry, this approach is intended to safeguard retail investors while supporting continued investment in India's real estate and infrastructure sectors. REITs and InvITs have become increasingly important investment vehicles in recent years by providing retail and institutional investors with access to income-generating commercial real estate and infrastructure assets. 
The Bill also proposes amendments to the Payment and Settlement Systems Act, 2007, by removing the existing legal restriction that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes. 
As part of the proposed changes, amendments have also been suggested to Section 269SU of the Income Tax Act, which requires businesses with an annual turnover exceeding INR 50 crore to provide specified electronic payment options, including RuPay debit cards and BHIM-UPI QR code payments. 
Under the current legal framework, banks and payment service providers are prohibited from imposing any direct or indirect charge on these notified electronic payment modes. The proposed legislation seeks to expand the categories of payment modes that may continue to qualify for zero-charge treatment under future government notifications while modifying the existing legal provisions governing MDR. 
Finance Ministry sources said all the proposals in the Bill share the common objective of making India a more predictable destination for global capital, manufacturing businesses, cloud service providers and infrastructure investors. The government believes that greater policy stability, simpler compliance requirements and targeted tax incentives will help attract long-term investments while strengthening India's position in global manufacturing, financial services and digital infrastructure. 
Source PTI