The Taxation and Other Laws Amendment Act 2026 received Presidential assent on 17 August 2026. It is the first significant set of amendments to the Income-tax Act, 2025 since the new law came into force on 1 April 2026, and it also amends the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007.
The Act replaces the Income-tax (Amendment) Ordinance promulgated on 5 June 2026 and adds further changes. Its focus is on investment, manufacturing and financial markets rather than on individual tax slabs, so most salaried taxpayers will see no change in their tax. Businesses with foreign investors, fund managers, REIT and InvIT structures, and electronics or data centre operations should read on.
Key takeaways
- The Act received assent on 17 August 2026, after being passed by the Lok Sabha on 6 August and the Rajya Sabha on 10 August 2026.
- Foreign institutional investors and the Bank for International Settlements are exempt from tax on interest and capital gains from government securities, with effect from 1 April 2026, subject to conditions.
- The safe harbour for offshore funds managed from India has been simplified by removing four conditions.
- Special purpose vehicles of business trusts face a higher surcharge of 25%, while unitholders receive an exemption on dividends from such SPVs.
- New or extended exemptions support electronics manufacturing, bonded warehousing of components, rough diamond sales in notified zones and data centre services.
Background: from ordinance to Act
In June 2026, the Government issued an ordinance to exempt certain foreign investors’ income from government securities, with the aim of deepening the bond market and supporting inflows. An ordinance must be approved by Parliament to continue, so the Taxation and Other Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha in August. The Bill carried the ordinance’s provisions forward and added a wider set of amendments. With the Act now in place, the ordinance stands repealed, and actions taken under it are protected.
Key changes in the Taxation and Other Laws Amendment Act 2026
| Area | What changed | Effective from |
|---|---|---|
| FIIs and BIS in government securities | Exemption on interest and capital gains | 1 April 2026 |
| Offshore fund safe harbour | Four eligibility conditions removed | 1 April 2026 |
| Business trust SPVs | Surcharge increased to 25%; dividends exempt for unitholders | 1 April 2026 |
| Electronics capital goods | Exemption for foreign suppliers extended to tax year 2040-41 | Extension of existing relief |
| Bonded warehouse components | New exemption for foreign companies | 1 October 2026 to 31 March 2041 |
| Rough diamonds in notified zones | New exemption for foreign sellers | 1 October 2026 to 31 March 2041 |
| Data centre services | Wider exemption, fewer approvals | 1 April 2026 |
| Payment modes | Updated reference for zero-charge electronic payment modes | On publication |
1. Exemption for FIIs and BIS on government securities
Foreign institutional investors and the Bank for International Settlements are now exempt from income tax on interest and on capital gains arising from investment in government securities, with effect from 1 April 2026. The exemption depends on furnishing the prescribed information in the prescribed form and manner. For Indian businesses, the indirect benefit is a deeper and more liquid bond market.
2. Simpler safe harbour for fund management from India
The Income-tax Act offers a safe harbour so that an offshore fund managed by a fund manager in India does not create a taxable presence merely because of that management. The Act removes four conditions that fund managers had found difficult: a minimum of 25 members, a 10% cap on participation by a single investor, a minimum corpus of ₹100 crore, and a 25% limit on investment in a single entity. Other safeguards, such as limits on participation by Indian residents and conditions on the fund manager, continue.
3. Business trusts and their SPVs
REITs and InvITs hold assets through special purpose vehicles. The amendments raise the surcharge on SPVs of business trusts to 25%, and give unitholders an exemption on dividend income arising from such SPVs. The practical effect is a more uniform treatment of dividends at the unitholder level. Trust managers should revisit distribution models and investor communication for the current tax year.
4. Support for electronics manufacturing
Foreign companies that supply capital goods, equipment or tooling to contract manufacturers of specified electronic goods, such as mobile phones, laptops, tablets and servers, already enjoyed an exemption. The Act extends it to tax year 2040-41. A new exemption also covers foreign companies that store components in bonded warehouses for supply to Indian contract manufacturers, from 1 October 2026 to 31 March 2041.
5. Rough diamonds and data centres
Foreign mining companies and similar sellers of rough diamonds in notified special zones receive an exemption on income from such sales, for the same period from 1 October 2026. For data centres, the Act widens the exemption available to foreign companies procuring data centre services from India, including facilities leased and operated by an Indian company, and removes the need for individual notification.
6. Payment and Settlement Systems Act
The 1961 Act required certain businesses to offer prescribed electronic payment modes without charging a fee. With the new Act in force, the reference in the Payment and Settlement Systems Act has been updated so that the Government can notify such payment modes going forward.
Who should review these changes?
- Businesses with foreign portfolio investors or those raising debt from overseas investors.
- Fund managers running or planning offshore funds from India, including from GIFT City.
- REIT and InvIT sponsors, managers and SPVs.
- Electronics manufacturers and their foreign suppliers, including logistics partners operating bonded warehouses.
- Data centre operators providing services to foreign customers.
For most individuals and small businesses, the amendments do not change tax rates, slabs or deductions. It remains important, however, to follow the new Act’s structure, which we explain in our guide to the Income-tax Act 2025.
Practical next steps
- Map the changes to your structure: identify which provisions touch your investors, entities or supply chain.
- Check the effective dates: some provisions apply from 1 April 2026, others only from 1 October 2026.
- Review contracts and offer documents: tax clauses and investor disclosures may need updating.
- Plan documentation: several exemptions depend on prescribed information or conditions being met.
- Monitor rules and notifications: the details of forms and procedures will follow through rules published by the CBDT on the Income Tax Department website.
Frequently asked questions
When did the Taxation and Other Laws (Amendment) Act 2026 come into force?
It received Presidential assent on 17 August 2026. Several provisions apply retrospectively from 1 April 2026, while others take effect from 1 October 2026 or from publication.
Does the Act change income tax slabs for individuals?
No. The amendments focus on investment, business trusts, manufacturing and related areas. Individual slab rates are unchanged by this Act.
What happened to the June 2026 ordinance?
The Act replaces the Income-tax (Amendment) Ordinance, 2026. Its provisions for FIIs and BIS continue through the Act, and the ordinance itself stands repealed.
Which law does the Act amend?
Mainly the Income-tax Act, 2025, together with the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007.
If you would like to understand how the Taxation and Other Laws (Amendment) Act 2026 applies to your business or investors, we would be happy to talk it through.
This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.
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