Government Tables Tax Bill To Woo Global Capital, Ease Rules For Data Centres And Electronics Makers

SEO Title: Taxation And Other Laws (Amendment) Bill 2026 Explained: Tax Changes For Data Centres, Electronics, REITs

Meta Description: India's new Taxation and Other Laws (Amendment) Bill, 2026 eases rules for offshore funds, data centres and electronics manufacturers while restoring REIT and InvIT tax benefits.

Tax legislation rarely generates headlines outside specialist financial press, and the Taxation and Other Laws (Amendment) Bill, 2026 is unlikely to break that pattern in mainstream news cycles. But for the specific communities of foreign fund managers, electronics manufacturers, data-centre operators and real estate investment trust holders it targets, this piece of legislation — introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha on Tuesday — represents one of the more consequential policy interventions of 2026, addressing structural tax uncertainties that have, by the government's own account, been discouraging exactly the kind of foreign capital and manufacturing investment India has spent years trying to attract.

The Bill amends the Income Tax Act, 2025 — which itself only took effect in April this year — alongside the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007. In its accompanying statement of objects and reasons, the government explicitly frames the legislation as a response to global instability: "In recent months, on account of evolving geopolitical developments and related disruptions in international trade and supply chains, the global economic landscape has undergone considerable uncertainty," the statement reads, adding that the changes are needed "to mitigate the impact of external economic shocks, ensure stability in the domestic economy and support key sectors affected by prevailing global conditions."

Making It Easier For Fund Managers To Actually Move To India

One of the Bill's most significant provisions targets a long-standing friction point in India's effort to become a genuine hub for global fund management activity: the risk that an offshore investment fund, by employing an India-based fund manager, could inadvertently create a taxable "business connection" in India, exposing the entire fund's global income to Indian taxation rather than just India-sourced returns. That risk has functioned as a powerful disincentive against global funds relocating investment decision-making talent to India, even as the country has otherwise tried to position itself as an attractive base for financial services talent.

The Bill proposes to sharply simplify the conditions governing an Eligible Investment Fund, reducing the number of qualifying conditions from 13 to just five, according to the Central Board of Direct Taxes' explanatory FAQs released alongside the legislation. Under the revised framework, fund management activities conducted through an eligible fund manager based in India will not, by themselves, create a business connection that exposes the fund to Indian tax liability — provided the fund meets the retained safeguard conditions designed specifically to prevent misuse and "round-tripping," where Indian residents' own money is routed offshore and back through a fund structure purely to obtain favourable tax treatment. A senior official described the intent plainly: the changes "give clear, stable, and predictable tax treatment as well the process to get the desired tax treatment," addressing what the official characterised as persistent uncertainty among overseas players about whether operating in or through India would create unexpected tax exposure.

Electronics Manufacturing Gets A Decade More Runway

On the manufacturing side, the Bill extends by ten years the tax exemption available on income earned by foreign companies that supply machinery and tooling to Indian contract manufacturers of electronics. That incentive, previously time-limited, will now remain available for a total period of fifteen years, running through FY2040-41, and covers products including mobile phones, laptops, personal computers, tablets and servers — precisely the electronics manufacturing categories India has spent recent years trying to attract through its broader Production Linked Incentive schemes and related industrial policy.

The extended exemption addresses a specific supply-chain gap: much of the sophisticated machinery and tooling required for advanced electronics manufacturing is still produced by specialised foreign equipment makers, and ensuring those suppliers face favourable Indian tax treatment when servicing Indian contract manufacturers is intended to reduce the effective cost of setting up and operating electronics production lines within India, supporting the broader "Make in India" manufacturing push. The Bill similarly proposes that income earned by foreign companies from storing electronic components in bonded warehouses for supply to Indian manufacturers will receive comparable tax treatment, addressing another link in the electronics supply chain that has historically faced tax friction.

Clearing The Path For India's "AI Data Cities"

Perhaps the provision with the most direct relevance to India's rapidly scaling technology sector concerns data centres specifically. The Bill removes multiple approval requirements and permits leased data-centre models — changes a senior official described as intended to support the development of large AI data centres and attract global cloud investment, helping India build what the official termed "AI data cities" capable of drawing significant international investment. For foreign cloud companies evaluating where to site data-centre capacity to serve Asian markets, simplified approval processes and clearer tax treatment for leased infrastructure models — as opposed to requiring outright ownership of data-centre real estate — could meaningfully lower the barrier to establishing or expanding Indian operations, at a moment when global demand for AI-relevant computing infrastructure is growing at a pace that has strained data-centre development timelines worldwide.

This provision connects directly to a separate but related development: Reserve Bank of India data showing that bank credit to India's software, IT services and digital infrastructure sector has nearly doubled over two years to ₹53,859 crore, reflecting the same underlying surge in digital infrastructure investment this tax legislation is designed to further accelerate. Together, expanding bank credit availability and simplified tax and approval treatment for data centres represent complementary policy and market forces both pushing in the same direction — a faster, better-capitalised buildout of India's domestic computing infrastructure.

Fixing A REIT And InvIT Tax Anomaly

The Bill also addresses a specific, technical tax quirk that has been quietly undermining investor confidence in India's Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) — vehicles that allow retail and institutional investors to gain exposure to income-generating real estate and infrastructure assets through publicly traded units. Under current rules, dividends paid by a special purpose vehicle (SPV) held by a business trust are tax-exempt for unit holders only if that SPV is taxed under the old corporate tax regime. If the SPV instead opts into the new regime introduced under the 2025 tax code, unit holders lose that exemption and become liable for tax on the dividend at rates that can run as high as 35%, depending on the investor's category and jurisdiction.

The Bill deletes that condition entirely, restoring tax-free dividend treatment for REIT and InvIT investors regardless of which corporate tax regime the underlying SPV has adopted — with a modest additional charge instead imposed at the operating-company level rather than passed through to individual unit holders. This fix matters considerably for investor confidence in India's still-maturing REIT and InvIT market, a sector policymakers have consistently identified as a critical channel for mobilising both domestic and foreign capital into real estate and infrastructure development, precisely the kind of long-duration, capital-intensive investment India's continued growth requires.

The Rough Diamond Trade Gets Its Own Carve-Out

In a somewhat less expected provision, the Bill proposes a fifteen-year tax exemption for foreign diamond miners and related entities selling rough diamonds through notified trading zones in Mumbai and Surat — cities that together represent the heart of India's globally significant diamond cutting and polishing industry. The explicit objective is positioning India as a global hub for rough diamond trading itself, not merely the downstream cutting and polishing activity for which the country is already internationally dominant, extracting more value from a supply chain where India currently captures processing margins but has historically ceded the trading and sourcing layer to established hubs like Antwerp and Dubai.

The Compliance Simplification Thread Running Through The Whole Bill

Beyond the specific sector-targeted provisions, officials involved in drafting the legislation have emphasised a broader, cross-cutting theme: reducing the sheer administrative and interpretive burden businesses face in determining their Indian tax obligations. This matters because tax uncertainty itself — independent of the actual tax rate ultimately owed — functions as a meaningful deterrent to foreign investment, since sophisticated investors and multinational businesses generally price genuine uncertainty as a cost, sometimes structuring around India entirely rather than accepting ambiguous exposure. By consolidating and simplifying conditions across offshore fund management, data centre operations, REIT and InvIT taxation, and electronics manufacturing incentives within a single coordinated legislative package, the government appears to be pursuing a deliberate strategy of addressing multiple, previously separate sources of investor uncertainty simultaneously, rather than through the more piecemeal, sector-by-sector policy adjustments that have characterised much of India's tax policy evolution historically.

How This Bill Fits India's Broader Investment Facilitation Push

This legislation does not arrive in isolation; it follows a multi-year pattern of India progressively refining its tax and regulatory treatment of foreign capital, from earlier reforms simplifying GIFT City's International Financial Services Centre framework to ongoing efforts to streamline customs and trade facilitation more broadly. Read as part of that longer arc, the Taxation and Other Laws (Amendment) Bill, 2026 represents less a single dramatic policy shift than the latest, most current instalment in a sustained government effort to systematically remove the accumulated friction points that have historically made India a more complicated destination for global capital than some competing emerging markets, even as India's underlying economic fundamentals — market size, growth rate, demographic profile — have remained consistently attractive to the same global investors these tax frictions have sometimes deterred.

Industry Reaction And What Comes Next In Parliament

Early industry reaction to the Bill's introduction has generally been positive among the specific constituencies it targets, with fund management, real estate investment trust and electronics manufacturing industry bodies broadly welcoming the clarity the legislation promises, even as detailed technical review of the drafting continues among tax practitioners and industry associations. As with any finance-related legislation, the specific language of individual provisions will likely face scrutiny and potential refinement as the Bill moves through the standard parliamentary process, including possible referral to a Standing Committee for detailed examination before final passage — a process that could introduce modifications to the specific provisions described here, even if the Bill's broad thrust of simplifying and clarifying tax treatment for foreign capital is unlikely to face fundamental opposition given the cross-party consensus that has generally existed around the broader goal of attracting foreign investment to India.

What Happens Next

The provisions contained in the Taxation and Other Laws (Amendment) Bill, 2026 will only become effective once the legislation clears both houses of Parliament and receives the President's assent — a process that, for finance bills of this nature, typically proceeds relatively smoothly given the government's parliamentary position, but is not yet a formality until actually completed. For the specific communities the Bill targets — offshore fund managers weighing whether to relocate operations to India, electronics manufacturers and their equipment suppliers planning multi-year capital expenditure, data-centre developers and cloud companies evaluating Indian expansion, and REIT and InvIT investors who have watched the dividend tax anomaly create unwelcome uncertainty — the Bill's passage would resolve several genuinely significant sources of tax ambiguity that have, by the government's own framing, been working against India's broader ambition to position itself as a magnet for global capital amid a period of considerable international economic and geopolitical uncertainty.