The Central Government is preparing a major overhaul of India's tax framework with the aim of making the country more attractive for investors, strengthening domestic manufacturing, and encouraging foreign capital inflows. The proposed changes are expected to simplify tax rules, reduce litigation, and improve the ease of doing business across key sectors.

The reforms are part of a broader strategy to position India as a preferred global manufacturing and supply chain destination while creating a more predictable tax environment for businesses and investors.

Tax Amendment Bill to Introduce Key Reforms

The government is expected to bring the Taxation and Other Laws (Amendment) Bill, 2026 in Parliament, proposing several tax-related changes across manufacturing, investment, digital infrastructure, and financial markets.

One of the major proposals is to extend tax benefits for the contract manufacturing of specified electronic products until FY 2040-41. The eligible categories are expected to include:

• Mobile phones

• Laptops

• Tablets

• Servers

• Wearable devices

• Electronic components and accessories

The move is aimed at strengthening India's electronics manufacturing ecosystem and supporting the country's long-term manufacturing ambitions.

Relief for Global Manufacturers and Supply Chains

The proposed bill also seeks to provide tax relief to foreign companies that store electronic components in customs-bonded warehouses in India. By lowering the tax burden on such operations, the government hopes to improve supply chain efficiency and encourage more global manufacturers to use India as a production and distribution hub.

Easier Rules for Foreign Investment Funds

To attract more overseas capital, the government plans to relax several conditions applicable to foreign investment funds.

The proposed changes include easing restrictions related to:

• Number of investors

• Minimum fund size

• Investment diversification norms

• Investments in subsidiaries

These measures are intended to make India a more attractive destination for global fund managers and institutional investors.

Tax Benefits for Government Securities

The bill also proposes tax exemptions on interest income and capital gains earned from government securities held by eligible foreign institutional investors (FIIs) and the Bank for International Settlements (BIS).

Experts believe these exemptions could increase global demand for Indian government bonds and improve foreign participation in the country's debt market.

REITs and InvITs May Receive Dividend Tax Relief Again

Another significant proposal is the restoration of tax exemption on dividend income distributed through Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

The move is expected to improve returns for investors and support long-term investment in real estate and infrastructure projects.

Push for India's Growing Data Centre Industry

The proposed reforms also focus on India's rapidly expanding digital infrastructure sector.

Key proposals include:

• Relaxing tax rules for leased data centres operated by Indian companies.

• Simplifying tax benefits for foreign companies purchasing services from eligible Indian data centres.

• Removing the requirement for central government notification in certain cases.

• Expanding the definition of "special data centre" to include qualifying leased facilities operated by Indian companies.

These changes are expected to support further investment in India's digital economy.

Long-Term Relief for Diamond Trading Businesses

The bill also proposes long-term tax exemptions for eligible foreign companies involved in the sale of rough diamonds through notified special trading zones.

The benefit may extend to:

• Diamond mining companies

• Sightholders

• Brokers

• Aggregators

• Auctioneers

The proposal aims to strengthen India's position as a global diamond trading and processing hub.

Changes Linked to Digital Payments

The government has also proposed changes relating to zero-charge digital payment methods such as UPI.

Instead of specifying eligible payment methods directly in the Income Tax Act, the Central Government would be empowered to notify eligible electronic payment systems under the Payment and Settlement Systems Act, allowing policy updates to be implemented more quickly as digital payment technologies evolve.

Focus on Long-Term Growth

Tax experts believe the proposed reforms are designed to create a simpler and more stable tax regime while improving investor confidence. By encouraging manufacturing, easing investment norms, strengthening digital infrastructure, and attracting foreign capital, the government aims to support long-term economic growth and reinforce India's position as a global investment destination.