Alert on Taxation and Other Laws (Amendment) Bill, 2026

On 5 June 2026, the Government of India (GOI) announced a series of reforms aimed at deepening the Government Securities (G-Secs) market and enhancing Foreign Portfolio Investor (FPI) participation. These reforms were announced in reaction to evolving geopolitical developments and related disruptions in international trade and supply chains.

As Parliament was not in session and circumstances existed which rendered it necessary to take immediate action, the President, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, promulgated the Income-tax (Amendment) Ordinance, 2026 (Ordinance) on the 5 June 2026.

Accordingly, the Government has introduced the Taxation and Other Laws (Amendment) Bill, 2026 (Amendment Bill) in the Lok Sabha on 4 August 2026 to ratify the Ordinance. 

In addition to ratification of Ordinance, the Amendment Bill introduces further amendments to the Income Tax Act, 2025 (ITA 2025) and the Finance Act, 2026 in the light of representations received from stakeholders after the enactment of Finance Act 2026 to comprehensively achieve the object of mitigating impact of external economic shocks, ensuring stability in the domestic economy and supporting key sectors affected by the prevailing global conditions.

This Alert covers key direct tax proposals contained in the Amendment Bill. The executive summary of the proposals is as below:

• Streamlining taxation of dividend distributions by business trusts by granting a uniform exemption to unitholders regardless of the tax regime adopted by the underlying Special Purpose Vehicle (SPV), but with higher surcharge (SC) of 25% for SPVs opting for concessional regime. 
• Exemption for foreign companies providing capital goods, equipment or tooling for specified electronics contract manufacturing extended till tax year 2040-41.
• Tax exemption proposed till tax year 2040-41 for foreign company storing components in bonded warehouse in India for supply to contract manufacturer manufacturing specified electronic goods. 
• Relaxation of conditions for exemption available to foreign companies procuring data centre services from India. 
• Tax exemption proposed for foreign companies engaged in sale of rough diamonds in notified special zones.
• Significant rationalization of the safe harbor framework promoting management of offshore funds from India by deletion of eight conditions to be satisfied by the offshore fund
• Tax exemption for interest income and capital gains earned by Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) from investments in Government Securities introduced by the Ordinance now ratified.