Govt tables tax bill to extend sops for foreign electronics firms till FY41, ease global fund rules

Finance Minister Nirmala Sitharaman on Tuesday introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, proposing a series of measures to extend tax incentives for foreign electronics companies, simplify rules for global investment funds, ease norms for data centres and restore dividend tax exemption for unit holders of REITs and InvITs, as it seeks to strengthen India's attractiveness as a global manufacturing and investment hub.

The Bill seeks to replace the Income-tax (Amendment) Ordinance, 2026 promulgated in June while introducing additional amendments to the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. The Statement of Objects and Reasons said the changes were necessitated by evolving geopolitical developments and disruptions in global trade and supply chains, requiring immediate measures to support key sectors and provide greater tax certainty.

According to Finance Ministry sources, the proposals are aimed at making India "a more attractive and predictable place for global capital, manufacturing and business to come and stay" by providing policy certainty and reducing regulatory friction for overseas investors.

Electronics manufacturing gets a decade-long boost

Among the key proposals, the Bill extends by 10 years the tax exemption available to foreign companies providing capital goods, equipment or tooling to Indian contract manufacturers of electronics. The benefit, earlier available until tax year 2030-31, has now been proposed to continue until tax year 2040-41.

The Bill also introduces a definition of "specified electronic goods", covering mobile phones, laptops, tablets, servers, ultra small form factor computers, sub-assemblies, hearables and wearables. It further proposes a new tax exemption, also valid until FY41, for foreign companies storing electronic components in customs bonded warehouses for supply to Indian contract manufacturers.

According to the Income Tax Department, the extension is intended to provide long-term certainty for electronics manufacturing while the definition of specified electronic goods has been introduced to bring greater clarity to the exemption framework.

Simpler framework for global funds, data centres

The Bill also proposes a major overhaul of the tax framework governing offshore investment funds by replacing the existing Schedule I of the Income-tax Act with a simplified set of eligibility conditions.

According to the Income Tax Department, the number of conditions required for an eligible investment fund has been reduced from 13 to five while retaining safeguards against misuse and round-tripping. Finance Ministry sources said the move is expected to encourage global fund managers to relocate to India by reducing the risk of overseas funds being treated as having a business connection in the country.

The legislation also eases tax exemption rules for foreign companies procuring data centre services by removing the requirement for government notification of both the foreign company and the specified data centre. It also allows qualifying Indian data centres to operate on leased premises instead of requiring direct ownership.

The Income Tax Department said the leasing provision was introduced after industry representations that ownership-only requirements were restrictive. Finance Ministry sources said the reforms are expected to support the development of AI-focused data centre ecosystems and attract significant investments into India's digital infrastructure.

Relief for REIT investors, diamond trade

The Bill also restores tax exemption on dividends received by unit holders of business trusts, including REITs and InvITs, even where the underlying special purpose vehicle (SPV) opts for the new corporate tax regime. To offset the revenue impact, it proposes a 25% surcharge on such SPVs under the Finance Act, 2026.

According to the Income Tax Department, the amendment ensures investors do not lose dividend tax benefits as SPVs migrate to the new tax regime following recent minimum alternate tax reforms.

Separately, the Bill proposes a 15-year tax exemption, until tax year 2040-41, for foreign mining companies, sightholders, brokers and auction entities selling rough diamonds through notified special zones. The Income Tax Department said the exemption would apply to notified special zones in Mumbai and Surat.

The proposed legislation also amends the Payment and Settlement Systems Act, 2007 to empower the Central government to notify electronic payment modes eligible for zero merchant charges, replacing the existing reference to the Income-tax Act.