India’s tax landscape keeps evolving, and 2026 has brought another major update. The Taxation and Other Laws (Amendment) Act 2026 reshapes several rules under the country’s tax framework.
Why Was This Act Introduced?
The story begins with the Income-tax Act, 2025. This law came into force on 1 April 2026, replacing the older Income-tax Act, 1961. It aimed to modernize and simplify India’s direct tax system.
However, the government soon felt the need for quick changes. So, on 5 June 2026, it issued the Income-tax (Amendment) Ordinance, 2026. Ordinances, though, are temporary by nature. Under Article 123(2) of the Constitution, Parliament must replace them with a proper Act.
Consequently, the government introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha. Lawmakers presented it on 4 August 2026 as Bill No. 150 of 2026. Once passed, it became the Taxation and Other Laws (Amendment) Act, 2026.
When Does the Act Take Effect?
Timing matters a lot in tax law. Therefore, the Act clarifies its effective date upfront. Unless stated otherwise, all provisions apply retroactively from 1 April 2026.
Additionally, the Act protects actions already taken under the earlier Ordinance. These actions remain valid. In fact, the law treats them as if they were always taken under the new Act itself.
Key Provisions of the Act
The Act touches multiple sectors and stakeholder groups. Below are its most significant changes.
Relief for Foreign Investors in Government Securities
Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) receive a major tax break. Specifically, they no longer pay income tax on interest from government securities. Similarly, capital gains from selling or transferring these securities also become exempt.
This exemption applies to income earned on or after 1 April 2026. Before this change, tax rates were steep. Interest income faced a 20% tax, while short-term gains attracted 30%. Long-term gains, meanwhile, were taxed at 12.5%.
Boost for Electronics Manufacturing
India wants to strengthen its electronics manufacturing base. As a result, the Act extends an existing tax exemption for another 10 years. This exemption benefits foreign companies that supply capital goods, equipment, or tooling to Indian contract manufacturers.
Support for the Diamond Trade
The diamond industry also gains new tax certainty. Foreign companies selling rough diamonds within a notified special zone now enjoy exemption on that income. This move aims to attract global diamond trading activity to India.
Easier Rules for Fund Managers
Previously, offshore fund managers faced 13 compliance conditions before relocating to India. Now, the Act trims this list down to just five core conditions. Consequently, fund managers can shift operations to India more easily.
Importantly, this change prevents the offshore fund itself from being treated as having a taxable presence in India. Therefore, it removes a major hurdle for global fund managers considering an Indian base.
Dividend Relief for Business Trust Investors
Business trusts often route income through special purpose vehicles (SPVs). Under the earlier rules, unit holders lost dividend exemption if the SPV chose the new tax regime. The Act fixes this gap.
Now, unit holders can claim dividend exemption regardless of the SPV’s tax regime choice. This change removes an unintended penalty on ordinary investors.
Relaxed Conditions for Data Centres
Foreign companies earning income from Indian data centre services also benefit. The Act relaxes certain conditions tied to this exemption. As a result, more companies can now qualify for the tax benefit.
Surcharge Update for Domestic Companies
On the revenue side, the Act also updates the Finance Act, 2026. It prescribes a 25% surcharge rate for eligible domestic companies. This change balances the various exemptions with a steady revenue stream.
What Does This Mean for Businesses and Investors?
Overall, the Act signals a clear policy direction. India wants to attract foreign capital, boost manufacturing, and simplify compliance. At the same time, it wants to maintain fiscal discipline through targeted revenue measures.
For foreign investors, the exemptions on government securities offer real savings. For manufacturers, the extended electronics exemption provides long-term planning certainty. Meanwhile, fund managers and diamond traders gain simpler, more predictable rules.
Naturally, businesses should still consult tax professionals before acting on these changes. Every entity’s situation differs, and proper compliance remains essential.
Final Thoughts
The Taxation and Other Laws (Amendment) Act 2026 marks another step in India’s ongoing tax reform journey. It replaces a temporary ordinance with lasting legislation. Furthermore, it introduces targeted relief across investment, manufacturing, and trading sectors.
As global economic conditions keep shifting, such reforms help India stay competitive. Ultimately, businesses and investors alike should watch these developments closely in the months ahead.
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