Lok Sabha passes Taxation and Other Laws (Amendment) Bill, 2026

On Thursday, Aug 6, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to amend the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025 and the Finance Act, 2026.

The Bill was approved by voice vote without discussion amid protests by Opposition members over their demands regarding police action against protesters on July 20.

Moved by Finance Minister Nirmala Sitharaman, the legislation seeks to replace the Income-tax (Amendment) Ordinance, 2026, and introduces a series of tax measures aimed at boosting investment, supporting manufacturing, enhancing tax certainty and improving the ease of doing business

The government stated that the amendments were proposed due to evolving geopolitical developments and disruptions in global trade and supply chains, aiming to mitigate external economic shocks and support sectors affected by current global conditions.

Key proposals include rationalising conditions for eligible offshore investment funds and eligible fund managers by reducing compliance requirements while retaining core safeguards. This aims to promote fund management activity in India and provide greater certainty to global investors.

The Bill also extends tax incentives for electronics manufacturing by continuing tax exemptions for foreign companies supplying capital goods, equipment and tooling to Indian contract manufacturers until the tax year ending March 31, 2041, instead of the earlier deadline of 2030-31. It further expands the list of specified electronic goods to include laptops, tablets, servers, hearables, wearables and related accessories.

To encourage foreign investment in government securities, the legislation proposes exemptions on interest income and capital gains earned by Foreign Institutional Investors (FIIs) and the Bank for International Settlements, subject to prescribed reporting requirements.

To strengthen India’s position in the global diamond trade, the Bill also proposes tax exemptions until March 31, 2041, for eligible foreign diamond mining companies, sight holders, brokers, aggregators and auction entities on income earned from selling rough diamonds through notified special zones.

For business trusts, the Bill removes an existing restriction that denied tax exemption on dividends received by unit holders if the special purpose vehicle had opted for the new tax regime.

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