The Taxation and Other Laws (Amendment) Bill, tabled in Parliament on August 4, proposes a series of tax reforms designed to make India more attractive for global capital, manufacturing and technology investments.
According to government sources, the Bill focuses on simplifying tax rules, improving policy certainty and reducing compliance requirements across sectors ranging from investment management and real estate to data centres and electronics manufacturing.
The proposed amendments span multiple areas. They seek to ease the tax framework for foreign fund managers, preserve tax benefits for REIT and InvIT investors, simplify rules for foreign cloud companies operating through Indian data centres, extend incentives for electronics manufacturing and strengthen India's position in the global rough diamond trade.
Fund manager reforms target global investment flows
A key proposal seeks to encourage international investment funds to base their fund managers in India by reducing the tax conditions attached to their presence in the country.
According to government sources, India has a deep pool of investment management talent, but a lengthy list of tax conditions has discouraged overseas fund managers from relocating because of concerns their presence could make the entire foreign fund taxable in India.
The Bill proposes to significantly reduce these conditions while retaining safeguards against misuse and round-tripping by Indian residents.
Government sources said the changes would allow fund managers to relocate to India without the overseas fund being treated as carrying on business in the country. The proposal would apply nationwide, including the International Financial Services Centre (IFSC), giving fund managers greater flexibility in choosing where to operate.
Officials expect the move to encourage more global investment firms to establish operations in India, creating high-value financial services jobs and strengthening the country's investment ecosystem.
Tax relief proposed for REIT and InvIT investors
The Bill also proposes changes to protect investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
Under the existing framework, dividends remain tax-free only if the underlying operating company continues under the old corporate tax regime. As companies increasingly shift to the new tax regime, investors risk losing this exemption.
The proposed amendment restores the tax exemption for investors even if the operating company migrates to the new regime.
According to government sources, revenue neutrality will be maintained through an additional levy at the operating company level instead of taxing investors directly.
The government said the proposal is intended to:
- Protect retail investors from losing dividend tax benefits
- Encourage continued investment in real estate and infrastructure assets
- Maintain overall tax neutrality through changes at the operating company level
Simpler tax framework planned for data centres
The Bill also seeks to simplify tax rules governing foreign cloud companies operating through Indian data centres.
At present, foreign cloud providers must obtain multiple government approvals to qualify for tax exemptions. The proposed amendments remove these approval requirements and allow Indian data centres to operate on leased infrastructure instead of requiring direct ownership.
According to government sources, the changes are expected to create a larger and more flexible data centre ecosystem capable of serving global cloud providers while supporting India's ambitions to become a hub for AI-focused digital infrastructure.
Officials said the reforms could help attract significant investment into large-scale AI data centre projects while reducing regulatory friction for businesses entering the market.
Longer tax certainty for electronics manufacturing
The Bill includes several measures aimed at strengthening India's manufacturing ecosystem, particularly for electronics.
One proposal extends the tax exemption available to foreign companies supplying machinery and tooling to Indian electronics manufacturers.
The exemption, previously available for five years, would now be extended by another ten years, taking the total benefit period to 15 years until FY2040-41, according to government sources.
The Bill also provides greater clarity by defining the electronic products covered under the provisions, including:
- Mobile phones
- Laptops
- Personal computers
- Tablets
- Servers
- Key parts and accessories
Government sources said the longer investment horizon and clearer product definitions are expected to support contract manufacturing and deepen India's electronics supply chain.
Push to expand India's role in the global diamond trade
Another proposal focuses on strengthening India's position in the global rough diamond market.
Since 2016, foreign diamond miners have been allowed to display rough diamonds in designated zones in Mumbai and Surat without attracting tax solely for exhibition.
The Bill proposes extending the benefit by fully exempting income earned by foreign diamond miners and associated participants, including brokers, aggregators, sight holders and auction houses, from selling rough diamonds in these zones for 15 years.
It also broadens the definition of rough diamonds, with the aim of shifting a larger share of global rough diamond trading to India while developing a supporting financing ecosystem.
Supply chain reforms seek to strengthen electronics production
The proposed legislation also addresses component storage for electronics manufacturing.
Foreign companies currently storing components in Indian bonded warehouses for supply to local manufacturers are taxed under a safe harbour provision based on a presumptive margin of 2%.
The Bill proposes replacing this framework with a full tax exemption for 15 years.
According to government sources, removing the tax altogether would reduce compliance, improve India's competitiveness against other manufacturing destinations and support just-in-time component supplies for electronics factories producing products such as phones, computers, laptops and servers.
Compliance reduction remains a common theme
Across the proposed amendments, the government has sought to reduce procedural requirements while maintaining tax safeguards.
Among the key ease-of-doing-business measures are:
- Fewer tax conditions for overseas investment funds establishing fund managers in India
- Removal of multiple approval requirements for foreign cloud companies and Indian data centres
- Permission for leased data centre infrastructure instead of mandatory ownership
- Replacement of safe harbour provisions with full tax exemptions for eligible component storage activities
- Simplified reporting requirements instead of multiple regulatory approvals
Government sources said these changes are intended to reduce paperwork, improve policy certainty and make India a more competitive destination for international businesses.
Focus shifts from incentives to long-term investment certainty
Taken together, the proposals signal a broader effort to position India as a long-term destination for investment rather than relying solely on tax incentives.
If enacted, the amendments would affect sectors including financial services, real estate, infrastructure, cloud computing, AI infrastructure, electronics manufacturing and the diamond trade. The Bill will now move through the parliamentary process before becoming law.