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The Government of India has taken a major policy step to reconfigure tax laws with the aim of strengthening the investment climate, giving fresh momentum to manufacturing, and attracting foreign capital (FDI).

The primary objective of this policy shift is to simplify the tax regime, reduce tax disputes and litigation, and establish India as a new hub within the global supply chain. Through an integrated tax structure—complemented by new direct tax reforms and Free Trade Agreements (FTAs)—the government aims to further bolster the confidence of both domestic and foreign investors.

What, then, is the core strategy behind this move? What long-term impact will it have on the Indian economy, the ‘Make in India’ campaign, and foreign investors? Let us examine this in detail...

**Tax-related bills to be introduced in Parliament**
The government is set to introduce significant changes to tax policy through the ‘Taxation and Other Laws (Amendment) Bill, 2026’. These changes include enhanced incentives for manufacturing and relaxed regulations for foreign investment funds. The bill is expected to extend tax concessions for the contract manufacturing of "specific electronic goods" until the 2040-41 fiscal year. According to an ET report citing informed sources, this list could include mobile phones, laptops, tablets, servers, wearable devices, and their associated components.

Foreign companies storing electronic components in customs-bonded warehouses may also receive tax relief up to the 2040-41 fiscal year. This move aims to strengthen supply chains and support India's ambition to become an electronics manufacturing hub. The bill is intended to replace the income tax ordinance issued in June. Additionally, it seeks to relax several regulations that act as hurdles for global fund managers—such as those concerning the number of investors, minimum corpus requirements, investment diversification, and restrictions on investments in associate companies.

**Making Government Debt Attractive**
The bill proposes tax exemptions on interest income and capital gains arising from government securities held by Foreign Institutional Investors (FIIs) and the Bank for International Settlements. This move is expected to enhance the appeal of Indian government debt instruments for international investors.

It also proposes reinstating tax exemptions on dividend income from Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

The proposed changes also aim to provide relief to India's burgeoning digital infrastructure sector by relaxing tax norms for leased data centers operated by Indian companies. The bill proposes modifying exemptions related to foreign companies availing data center services from specific data centers.

The requirement for a foreign company to be notified by the Central Government has been removed. The definition of a "specified data center" has also been amended to include data centers operated by Indian companies—whether owned or leased—provided specific conditions are met.

The bill proposes long-term exemptions for foreign companies engaged in the sale of rough diamonds through notified special zones. This covers diamond mining companies, sightholders, brokers, aggregators, and auction houses.

It proposes a higher surcharge of 25% for Special Purpose Vehicles (SPVs) that opt ​​for the new corporate tax regime, compared to the 10% surcharge applicable to other domestic companies. The bill is likely to be tabled in the Lok Sabha today (Tuesday).

**Bill Related to UPI**
It proposes exempting zero-charge electronic payments from a specific provision of the Income Tax Act. Instead, the central government will have the authority to directly notify eligible electronic payment methods under the ‘Payment and Settlement Systems Act,’ enabling quicker policy adjustments. Experts believe this exemption will make Indian sovereign debt instruments (such as government bonds) more attractive to international investors.

Richa Sawhney, Tax Partner at Grant Thornton, stated in an ET report that, overall, these changes reflect an effort to foster economic stability and ease of investment. The aim of these measures is not only to address immediate challenges arising from global uncertainties but also to provide a predictable tax framework for businesses and investors operating in strategic sectors.

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