India's New Bill: Fueling Foreign Investment, Boosting Local Making

India has introduced the 'Taxation and other Laws (Amendment) Bill, 2026,' aimed at attracting foreign capital and promoting domestic manufacturing by ensuring reliable policy and process certainty.

The bill simplifies relocation for fund managers, preventing foreign funds from being treated as doing business in India. It also extends income tax exemptions until 2040-41 for foreign companies providing machinery for contract manufacturing of specified electronic goods like mobile phones and laptops.

Further incentives include a 15-year income tax exemption for companies storing components in Indian customs warehouses for supply to contract manufacturers. Additionally, foreign cloud companies will no longer need multi-layered government approvals to use Indian data centers.

The proposed legislation also allows Indian data centers to operate on a leased basis, fostering a more flexible ecosystem for global cloud players. This move is expected to facilitate the development of 'AI data cities' in India.

To support business trusts, investors in REITs and InvITs will continue to receive tax-free dividends even if the operating company shifts tax regimes. A modest charge at the operating company level will maintain revenue neutrality. For electronics manufacturing, tax exemptions for foreign companies engaging contract manufacturers have been extended by 10 years, till 2040-41.

Finally, the bill amends the Payment and Settlement Systems Act, 2007, to remove restrictions on banks and payment providers charging Merchant Discount Rate (MDR) on certain notified electronic payment modes, expanding payment flexibility.