India’s Parliament has passed a comprehensive bill to attract and retain foreign capital, offering extended tax incentives, easing compliance, and targeting key sectors like electronics, diamonds, and infrastructure to foster manufacturing and economic growth.
India’s Parliament has moved to widen the country’s appeal to foreign capital, with the Lok Sabha passing the Taxation and Other Laws (Amendment) Bill, 2026, on August 6. The measure replaces an ordinance issued earlier this year and is designed to give investors greater certainty across electronics, government securities, data centres, diamond trading and infrastructure-related funds, while also reducing some compliance burdens. According to the government, the aim is not only to attract investment but to keep it in India long enough to support manufacturing, jobs and a broader business ecosystem.
One of the most significant changes is in electronics manufacturing. The legislation extends tax incentives for foreign firms supplying capital goods, equipment and tools to Indian contract manufacturers of specified electronic products until March 31, 2041, compared with an earlier deadline of 2030-31. It also spells out the products covered, including mobile phones, laptops, tablets, personal computers, servers, hearables and wearables. The government has also added a 15-year exemption for foreign companies that store electronic components in customs-bonded warehouses before supplying them to Indian manufacturers, a move intended to deepen the supply chain and reduce dependence on imports.
The amendments build on measures already announced in June, when the government issued the Income-tax (Amendment) Ordinance, 2026, to exempt foreign investors and the Bank for International Settlements from tax on interest income and capital gains from Indian government securities. That step, effective retrospectively from April 1, 2026, was meant to make Indian debt more attractive to overseas investors and deepen foreign participation in the market. The new Bill keeps that direction in place, while also easing some rules for overseas investment funds managed from India by rationalising conditions on fund size, investor concentration and related tests, while retaining safeguards against round-tripping.
The legislation also gives further tax relief to eligible foreign portfolio investors and the Bank for International Settlements on gains from government securities, subject to reporting requirements. In parallel, it seeks to make India more competitive in digital infrastructure by simplifying the tax treatment of foreign cloud companies using Indian data centres. The approval requirements that previously applied in some cases are being removed, and qualifying data centres may operate on a leased basis rather than through direct ownership, which could lower the entry barrier for global technology firms.
Beyond finance and technology, the Bill reaches into two niche but strategically important areas: diamonds and infrastructure trusts. It offers a 15-year tax exemption for eligible foreign companies involved in rough diamond trading through notified special zones, including mining companies, sightholders, brokers, aggregators and auction entities. It also removes a restriction that could have jeopardised tax-exempt treatment for some dividends paid by Real Estate Investment Trusts and Infrastructure Investment Trusts, restoring investor-level exemption and preserving the tax neutrality of those structures. Finance Minister Nirmala Sitharaman has also said the government is not imposing charges on Unified Payments Interface transactions, adding that any future merchant discount rate, if introduced, would apply to merchants rather than customers.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
