India’s Taxation and Other Laws (Amendment) Act 2026: Key Tax Reliefs for Investors

The Taxation and Other Laws (Amendment) Act 2026 introduces targeted changes to India’s tax and regulatory framework. Under this legislation, several amendments have been made to different acts, such as the Payment and Settlement Systems Act 2007, the Income Tax Act 2025, and the Finance Act 2026. It received the presidential assent on 17 August 2026 and is deemed to have come into force from 1 April 2026, unless a provision specifies a different effective date.

The amendments primarily address electronic payment modes, foreign investment funds using Indian fund managers, tax exemptions for specified foreign investors and industries and electronics manufacturing, and the taxation of certain special purpose vehicles (SPVs).

Changes to electronic payment provisions

The Act amends section 10A of the Payment and Settlement Systems Act, 2007. Previously, the provision referred to electronic payment modes prescribed under section 269SU of the Income Tax Act 1961.

The amendment replaces this reference with a provision allowing the central government to specify one or more electronic modes of payment by notification under Section 187 of the Income Tax Act 2025. This gives the tax authorities greater flexibility to prescribe payment methods without linking the provision to a specific section of the former Income Tax Act.

This amendment takes effect from the date of publication of the Act in the official gazette.

Revised safe harbour for foreign investment funds

One of the key amendments replaces Schedule I of the Income Tax Act 2025. The new schedule establishes conditions under which certain activities of eligible foreign investment funds will not constitute a business connection in India.

The framework is particularly relevant to foreign investment funds that appoint or use an eligible fund manager in India.

Conditions for an eligible investment fund

An eligible investment fund must:

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• Establish, incorporate, or register itself outside India
• Remain non-resident in India
• Maintain residence in a qualifying jurisdiction or establish itself in a jurisdiction notified by the central government under section 159(1) or (2) of the Income Tax Act 2025
• Ensure that persons resident in India hold no more than 5 per cent of the fund’s corpus, subject to the applicable exceptions
• Not carry on, control, or manage any business in India
• Ensure that persons acting on its behalf do not undertake activities that create a business connection in India, except for activities that the eligible fund manager may undertake under the safe-harbour framework

The fund must test the 5 per cent Indian participation limit on 1 April and 1 October of each tax year. It may exclude a contribution of up to INR 250 million made by the eligible fund manager during the fund’s first three years of operation when calculating this limit.

If Indian participation exceeds 5 per cent on either measurement date, the fund can restore compliance within four months of that date to satisfy the condition.

Requirements for the Indian fund manager

The eligible fund manager must not be an employee or connected person of the fund and must be appropriately registered as a fund manager or investment adviser under the specified regulations. The manager must also act in the ordinary course of its fund-management business.

In addition, the fund manager and its connected persons cannot be entitled, directly or indirectly, to more than 20 per cent of the profits arising to the fund from transactions conducted through the manager.

Reporting requirement

The safe harbour is subject to ongoing compliance. Each eligible investment fund must submit a prescribed statement and other required information to the prescribed income-tax authority within 90 days from the end of the tax year.

Foreign funds using Indian fund managers should therefore maintain records covering their investor composition, corpus, Indian participation, fund-manager contributions, registration status, profit entitlement, and activities undertaken in India.

Tax relief for electronics manufacturing in India

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The Taxation and Other Laws (Amendment) Act 2026 modifies Schedule IV (Serial No. 13A) of the Income Tax Act 2025. The amendment requires the contract manufacturer to produce specified electronic goods on behalf of the foreign company for consideration.

The definition of specified electronic goods covers the following:

1. Mobile phones
2. Laptops
3. All-in-one personal computers
4. Tablets
5. Servers and ultra-small form factor devices
6. Sub-assemblies of these products
7. Hearables, wearables, and related accessories.

This amendment, therefore, covers a wider electronics manufacturing ecosystem rather than only finished mobile phones. This is to support certain foreign-company and Indian contract-manufacturing arrangements. Benefits under this are also extended from tax year 2030-31 to 2040-41.

Relief for electronics components stored in bonded warehouses

Another provision introduced by the Taxation and Other Laws (Amendment) Act, 2026, Serial No. 13G of Schedule IV of the Income Tax Act 2025, provides an exemption for specified income arising from the storage of components in a customs-bonded warehouse.

The provision applies where a foreign company stores components in a customs-bonded warehouse for supply to an Indian contract manufacturer, which uses the components to manufacture specified electronic goods.

The Act defines a contract manufacturer as an Indian company that produces specified electronic goods on behalf of a foreign company in a customs-bonded area. A customs-bonded area refers to a warehouse covered by section 65 of the Customs Act, 1962.

The exemption is subject to prescribed information-furnishing requirements and applies to income arising from the sale of the components by the foreign company. The exemption remains available until the tax year ending 31 March 2041.

Select tax exemption relief for government securities

The Taxation and Other Laws (Amendment) Act 2026 introduces two new exemptions under Schedule IV of the Income Tax Act 2025 for specified recipients earning income from Indian government securities.

The exemptions cover:

1. Interest earned on government securities
2. Capital gains arising from the sale, exchange, or transfer of those government securities

The exemptions apply separately to Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS). Both exemptions require the recipient to furnish prescribed information in the prescribed form and manner.

Clarification on specified data centres

The Taxation and Other Laws (Amendment) Act 2026 amends the definition of a “specified data centre” under Schedule IV of the Income Tax Act 2025. Under the amended definition, a specified data centre must meet two conditions:

1. An Indian company must operate the data centre, either by owning or leasing it
2. The data centre must satisfy any other conditions prescribed under the applicable rules.

The amendment therefore clarifies the type of entity that must operate the data centre to qualify as a specified data centre for the relevant tax provisions. The provision does not itself set out the additional conditions; it states that these conditions will be prescribed separately.

Changes to tax rates for certain SPVs

The Taxation and Other Laws (Amendment) Act 2026 introduces separate tax rates for domestic companies based on whether they qualify as specified special purpose vehicles (SPVs).

The distinction applies under both section 3(4) and section 3(12) of the Finance Act, 2026.

What does this mean for businesses?

The change is particularly relevant to SPVs used in business-trust structures, including REITs and InvITs, as the higher SPV-level tax rate may affect their overall tax costs.

Businesses and investors using these structures may need to:

• Reassess the tax cost at the SPV level
• Review the impact on dividend distributions and investor returns
• Update financial models to reflect the revised tax rates and the related treatment of dividend income at the business-trust unit-holder level

The amendment therefore has implications not only for the affected SPVs but also for sponsors, investors, and businesses that use business-trust structures.

Repeal of the Income Tax Amendment Ordinance 2026

The Act repeals the Income Tax (Amendment) Ordinance 2026. However, actions already taken under the Ordinance remain valid and are treated as having been taken under the corresponding provisions of the new Act.

This ensures continuity between the temporary ordinance and the legislation that replaces it.

Key takeaway

The Taxation and Other Laws (Amendment) Act 2026 introduces targeted measures to support international investment, electronics manufacturing and specified financial activities while updating India’s payment and tax framework.

For businesses, critical changes include the revised safe harbour for foreign investment funds using Indian fund managers, extended electronics-manufacturing benefits, government-security exemptions for specified foreign investors, and tax relief for certain bonded-warehouse arrangements.

These benefits remain conditional on meeting prescribed eligibility, reporting, and documentation requirements. Businesses should therefore assess the relevant conditions and effective dates before relying on any of the new exemptions or safe-harbour provisions.

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