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The Lok Sabha on Thursday passed the 'Taxation and Other Laws (Amendment) Bill, 2026 ', which seeks to amend the Payment and Settlement Systems Act, 2007, Income-tax Act, 2025, and Finance Act, 2026. The Bill, moved by Finance Minister Nirmala Sitharaman for passing, was approved by voice vote without discussion amid protests by opposition members over their demands related to police action against protestors on July 20. It proposes a series of tax changes aimed at boosting investment, supporting manufacturing, providing tax certainty and will replace the Income-tax (Amendment) Ordinance, 2026.

The bill was brought against the backdrop of evolving geopolitical developments and disruptions in global trade and supply chains. The government has said the amendments are intended to mitigate external economic shocks, ensure domestic economic stability and support sectors affected by prevailing global conditions while also providing greater ease of doing business and tax certainty.

Key Taxation Proposals

One of the key taxation proposals in the Bill is the rationalisation of the conditions governing eligible offshore investment funds and eligible fund managers. The Bill proposes to simplify the framework of the Income-tax Act, 2025 by reducing compliance conditions while retaining core safeguards, with the objective of promoting fund management activity in India and providing greater tax certainty for global investors.

Incentives for Electronics Manufacturing

The Bill also proposes to extend tax incentives for electronics manufacturing. It seeks to extend the tax exemption available to foreign companies supplying capital goods, equipment or tooling to Indian contract manufacturers for specified electronic goods until the tax year ending March 31, 2041, instead of the earlier sunset of 2030-31. It also expands the definition of specified electronic goods to include products such as laptops, tablets, servers, hearables, wearables and related accessories.

Exemptions for Foreign Investors

Another significant proposal in the bill is the introduction of fresh tax exemptions for foreign investors in government securities. The Bill proposes to exempt interest income as well as capital gains arising from the sale, exchange or transfer of government securities for Foreign Institutional Investors (FIIs) and the Bank for International Settlements, subject to prescribed reporting requirements.

Support for Diamond Trade

To strengthen India's position in the global diamond trade, the Bill proposes a tax exemption until March 31, 2041 for income earned by eligible foreign diamond mining companies, sight holders, brokers, aggregators and auction entities from the sale of rough diamonds conducted through notified special zones.

Changes for Business Trusts

For business trusts, the Bill proposes to remove an existing restriction that denied tax exemption on dividends received by unit holders where the special purpose vehicle (SPV) had opted for the new tax regime.

Amendments to Payment Systems Act

Apart from tax changes, the Bill also proposes to amend the Payment and Settlement Systems Act, 2007 by removing references to the Income-tax Act in provisions relating to electronic payment modes. It empowers the Central Government to notify electronic payment modes on which banks or system providers cannot levy charges. (ANI)