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Informist, Tuesday, Aug. 4, 2026

 

--Sitharaman tables Taxation and Other Laws (Amendment) Bill in Lok Sabha 

 

NEW DELHI – Finance Minister Nirmala Sitharaman Tuesday tabled the Taxation and Other Laws (Amendment) Bill, 2026 in Lok Sabha, proposing a host of tax and regulatory changes aimed at boosting investment, manufacturing, and ease of doing business. The bill seeks to amend the Payment and Settlement Systems Act, 2007, overhauling the legal framework governing digital payment charges. It also seeks to replace the ordinance promulgated in June, which introduced capital gains and withholding tax exemptions for foreign portfolio investors.

 

Under the bill, the government will have the power to notify electronic payment modes on which banks and payment system providers cannot levy charges, replacing the existing framework linked to the Income-tax Act. This amendment also gives flexibility to the government to decide in the future which digital payment modes could attract Merchant Discount Rate. The Merchant Discount Rate, popularly called MDR, is a fee a merchant pays to a bank for processing digital payments like credit cards, debit cards, or unified payment interfaces.

 

The bill also substantially relaxes the eligibility conditions for an eligible investment fund managed from India to qualify for tax exemption on its global income, a move that could help India's position as a global fund management hub. "Until now, a long and demanding list of conditions discouraged those managers from basing themselves in India, for fear that doing so might make the entire foreign fund taxable here," finance ministry sources said. "The Bill cuts this list of conditions down sharply, keeping only what is essential to prevent misuse and round tripping of money by Indian residents."

 

Under the proposal, offshore funds will no longer be required to meet a minimum investor threshold of 25 members, a maximum 10% participation interest for a single investor, an aggregate participation cap of 50% for 10 or fewer investors, or a restriction on investing more than 25% of the corpus in a single entity. The bill removes restrictions on investments in associate entities and the requirement to maintain a minimum monthly average corpus of INR 1 billion.

 

"These proposed changes are expected to significantly enhance the attractiveness of India's onshore fund management ecosystem for offshore funds, and facilitate greater relocation of offshore fund management activities to India," Abheet Sachdeva, partner, M&A tax, Nangia Global, said. "The proposed amendments also remove the specific enabling provision empowering the government to prescribe separate exemption conditions for funds operating from the International Financial Services Centre," he said. "This eliminates the existing ambiguity between IFSC and non-IFSC offshore funds by introducing a uniform eligibility framework, ensuring that the same conditions apply to all eligible investment funds managed from India."

 

The bill also extends tax benefits for foreign companies supplying capital goods to electronics manufacturers till 2040-41 (Apr-Mar). It also extends a tax exemption until FY41 for foreign companies storing components in customs-bonded warehouses for contract manufacturing in India. In addition, it proposes a tax exemption until FY41 for foreign diamond mining companies and related entities selling rough diamonds through notified special zones.

 

According to finance ministry sources, these are aimed "squarely at strengthening India as a manufacturing base", especially for electronics, and at deepening the supply chains that support it. "Global companies bring in equipment, components and materials to have goods made in India. These measures give them the long-term certainty they need to commit," the sources said.

 

The bill also seeks to replace the ordinance promulgated on Jun. 5, which exempted income from interest and capital gains earned by FPIs on investments in government securities from tax. To attract foreign investment and shore up foreign exchange reserves, the government had exempted foreign investors from paying capital gains tax on investment in government bonds and withholding tax on interest earned from such investments.

 

The ordinance stated that any interest earned on government securities and any capital gains arising from the sale, exchange or transfer of such securities would be exempt from tax. It was introduced to attract foreign capital to ease pressure on the rupee following the war in West Asia.

 

The ordinance also exempted the Bank for International Settlements from capital gains tax. The Bank for International Settlements, owned by central banks, serves as a forum for monetary and financial cooperation and also acts as a banker and asset manager for central banks and international organisations.

 

Before the ordinance, foreign institutional investors were liable to pay 12.5?pital gains tax on investments in government bonds held for more than 12 months, while interest income attracted a 20% withholding tax. The ordinance was introduced amid pressure on India's external sector following the West Asia war, which drove successive record lows and prompted aggressive intervention by the Reserve Bank of India to curb the currency's decline.  End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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