Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha on 4 August 2026.
For offshore funds, the qualifying conditions for an Eligible Investment Fund are cut from 13 to five, so that fund management from India does not create a business connection here.
Tax exemption for foreign companies supplying machinery and tooling to Indian electronics contract manufacturers is extended by 10 years, taking the total incentive period to 15 years up to FY 2040-41.
For data centres the Bill removes multiple approval requirements and permits leased data centre models, aimed at large AI data centre investment.
The Bill also carries the amendment to Section 10A of the Payment and Settlement Systems Act, 2007 that would allow MDR on notified digital payment modes.
Under Indian income tax law, a non-resident is taxable in India on income that accrues through a business connection in India. For years this created a problem for the fund management industry: if an offshore fund's manager sat in Mumbai, the fund itself risked being treated as having a business connection here, exposing its entire global income to Indian tax. The rational response was to keep the manager in Singapore, Dubai or Mauritius. A safe harbour was created for Eligible Investment Funds, but it came with thirteen conditions that were difficult to satisfy in practice. Reducing them to five is aimed at making it realistic for funds to be managed from India without adverse tax consequences.
Simple Analogy: It is the difference between visiting a country and setting up shop in it. The law is being redrawn so that hiring a local adviser counts as visiting, not as setting up shop.
The same Bill carries the amendment to Section 10A of the PSS Act, 2007, which would let the government notify the digital payment modes that stay exempt from Merchant Discount Rate.
The offshore fund relaxations complement the tax regime built around the International Financial Services Centre at GIFT City, which was designed to attract fund management activity onshore.
The electronics concessions support the contract manufacturing base that the PLI scheme for mobile phones and IT hardware has been building.
A Bill imposing or altering taxation is a Financial Bill, which can be introduced only in the Lok Sabha and on the recommendation of the President.
GS Paper III > Indian Economy > Government budgeting, investment models, taxation
Financial Awareness > Taxation, capital flows, fund management
General Awareness > Economy and legislation
An offshore fund that satisfies prescribed conditions so that its management from India does not create a taxable business connection here; the conditions fall from 13 to five under the Bill.
The link that makes a non-resident's income taxable in India under the Income-tax Act.
Production of goods by one firm under contract for another, the dominant model in Indian electronics assembly.
A Bill dealing with taxation or expenditure, introduced only in the Lok Sabha on the President's recommendation.
Central Board of Direct Taxes, the apex body for direct tax administration, functioning under the Department of Revenue.