INTRODUCTION
Tax legislation rarely moves fast in India, but this one has. On 6 August 2026, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, barely two days after it was introduced, and without any real debate on the floor. The Bill now heads to the Rajya Sabha, but its contents are already generating conversation across the fund management, electronics manufacturing and digital payments industries. This piece breaks down what the Bill actually changes, why it was brought in so quickly, and what it means for the sectors it touches.
BACKGROUND
The Bill was introduced to replace the Income-tax (Amendment) Ordinance, 2026, which the government had issued back on 5 June. It amends three existing statutes at once: the Income-tax Act, 2025, the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007. Finance Minister Nirmala Sitharaman moved the Bill for passing, and it cleared the House by voice vote, with opposition members preoccupied protesting a separate matter relating to police action against protestors on 20 July, rather than contesting the Bill’s provisions themselves. According to the government’s own framing, the amendments are meant to cushion the domestic economy against external shocks and provide stability at a time when global trade and supply chains are going through a rough patch.
KEY POINTS
- Foreign Institutional Investors and entities such as the Bank for International Settlements have been given a tax exemption on interest income earned from investments in Government securities, applicable from 1 April 2026, replacing what used to be a 20% tax on that interest.
- The conditions that offshore investment funds managed from India had to meet are being relaxed considerably, including doing away with the requirement of a minimum of 25 investors and the condition of maintaining an average monthly fund size of ₹100 crore.
- On the manufacturing side, foreign companies storing electronic components in customs bonded warehouses for supply to Indian contract manufacturers, covering parts used in phones, laptops and servers, will get tax exemptions running from 1 October 2026 all the way to 31 March 2041.
- Existing tax benefits for foreign suppliers of machinery and tooling to Indian electronics manufacturers have similarly been extended out to 2040-41, giving industry a much longer runway to plan investment.
- On digital payments, the Bill does away with the mandatory zero Merchant Discount Rate (MDR) rule and instead hands the government fresh authority to regulate charges on payment modes such as UPI and RuPay going forward.
- Business trust structures get some relief too, with dividend-related benefits restored for unit holders of REITs and InvITs, even as the surcharge on specified special purpose vehicles opting for the new tax regime has been raised from 10% to 25%.
RECENT DEVELOPMENTS
The Bill also widens tax relief for foreign companies using data centres based in India, and eases entry for foreign data centre service providers by dropping certain mandatory government notification requirements and allowing leased facilities to qualify as well, a change clearly aimed at India’s growing appetite for cloud and digital infrastructure. Separately, the rough diamond trade gets its own set of exemptions, continuing a pattern of the government carving out sector-specific relief through ordinance-turned-legislation rather than a single consolidated tax code revision. What’s notable is the pace: an ordinance in June, a Bill introduced in early August, and passage through the Lok Sabha within days, all without substantive discussion in the House. That speed has drawn its own share of criticism from commentators who feel complex tax changes affecting multiple sectors deserve more scrutiny than a voice vote amid unrelated protests allows for.
CONCLUSION
Whether this Bill delivers on its stated goal of insulating the economy from external shocks will only become clear once the Rajya Sabha takes it up and, eventually, once these provisions are tested in practice by the industries they’re meant to benefit. For now, what’s clear is the direction of travel: fewer conditions for offshore fund managers, longer tax holidays for electronics manufacturers, more regulatory control over how digital payment charges are set, and continued tinkering with the tax architecture around business trusts and special purpose vehicles. Whether speed came at the cost of scrutiny is a fair question, but the changes themselves are substantial enough that anyone operating in these sectors will need to read the fine print closely once the Bill clears Parliament.
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WRITTEN BY: MAHFUZA FATHIMA
