Sitharaman introduces tax amendment Bill to attract global capital, strengthen manufacturing

Union Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws Amendment Bill, 2026, on Tuesday during the Monsoon session of Parliament in New Delhi. The bill aims to position India as a more attractive and predictable destination for global capital, bolster domestic manufacturing, and simplify tax compliance through a series of proposed reforms. It seeks to amend three existing laws, the Payment and Settlement Systems Act, 2007; the Income-tax Act, 2025; and the Finance Act, 2026, and replaces the Income-tax (Amendment) Ordinance, 2026, which was issued on June 5 and took effect retroactively from April 1. Sitharaman highlighted the growing uncertainties in the global economic environment due to shifting geopolitical dynamics and disruptions in international trade and supply chains. She stated that these challenges necessitate immediate taxation measures to reduce the impact of external economic shocks, stabilize the domestic economy, and support industries facing difficulties because of current global conditions. The ordinance, enacted by the President of India, had granted tax exemptions to eligible foreign investors on government securities (G-Secs), aiming to draw investments from foreign institutional investors (FIIs), foreign portfolio investors (FPIs), and the Bank for International Settlements (BIS). The new bill will repeal this ordinance while ensuring that actions taken under its provisions remain valid. A finance ministry official described the Taxation and Other Laws Amendment (TOLA) Bill as centered on three main goals, encouraging foreign capital inflows, promoting the "Make in India" initiative, and improving ease of doing business. According to the official, simplifying tax rules is intended to prevent foreign investment funds from being unfairly taxed simply for using India as a base. He emphasized that overseas entities often face uncertainty regarding potential tax exposures when operating or investing through India, and the proposed changes aim to offer clarity, stability, and predictability in tax treatment. The TOLA bill includes provisions allowing Indian data centres to operate on a leased basis instead of solely under direct ownership. This reform is expected to expand and diversify the ecosystem of Indian data centres, enabling them to better serve global cloud service providers. The official noted that this could contribute to the development of large "AI data cities" and attract substantial investment into such projects. To support the "Make in India" campaign, particularly within the electronics sector, the bill extends the duration of tax benefits for foreign companies supplying machinery and tooling to Indian factories producing electronics. The period of eligibility for these benefits is increased from five years to 15 years, effectively until the fiscal year 2040–41. This change is anticipated to benefit firms such as Apple, which rely on foreign suppliers for components used in their products manufactured in India. Additionally, the bill proposes a 15-year tax exemption for the rough diamond trade. Since 2016, foreign diamond miners have been permitted to display rough diamonds in designated areas in Mumbai and Surat without being taxed merely for exhibiting them. The new provision aims to transform this display into actual trade by fully exempting the income of foreign diamond miners and associated traders. This measure is designed to stimulate greater participation in India’s diamond industry and attract additional investment from international players in the sector.