Taxation And Other Laws (Amendment) Bill, 2026

Existing Clause

Proposed amendments

Rationale

Section 9(12) provides that fund management activity carried out by an eligible investment fund through eligible fund manager shall not constitute business connection in India. Conditions to be satisfied are as per Schedule I.

Schedule I presently prescribes 13 conditions to be satisfied by an eligible investment fund to claim benefit.

Schedule I is proposed to be substituted with new schedule wherein 13 existing eligibility conditions for the investment fund are reduced to 5.

The 5 conditions are:

(i)   the fund is not resident in India;

(ii)   it is resident in a treaty country/ notified jurisdiction;

(iii)   aggregate investment by Indian residents therein does not exceed 5% of corpus;

(iv)  Fund does not carry on or control and manage any business in India; and

(v)  no person acting on behalf of the fund creates a business connection in India other than the eligible fund manager.

The amendment seeks to rationalise the eligibility framework so as to encourage relocation           of                           fund management activity to India without exposing offshore funds to an unintended business connection risk in India.

Existing Clause

Proposed amendments

Rationale

Income of a foreign company arising from providing capital goods, equipment or tooling to an               Indian               contract manufacturer for manufacture of specified electronic goods is presently exempt up to tax year 2030-31.

The exemption period is proposed to be extended for a further period of 10 years, i.e., upto tax year 2040-41

Further, the term specified electronic goods, is proposed to be defined to mean-

(a)   mobile phones; or

(b)   laptops,               all-in-one personal computers and tablets; or

(c)   servers and ultra-small form factor (USFF) devices; or

(d)   sub-assemblies to the finished goods mentioned in clauses (a) to (c); or

(e)   hearables and wearables and accessories related to finished goods mentioned in clauses (a) to (c).

The proposed amendment seeks           to            continue

incentivizing                                  contract manufacturing arrangements in India and provide clarity by defining the scope of eligible electronic goods.

Existing Clause

Proposed amendments

Rationale

Income of a foreign company arising from procuring data centre services from a specified data centre in India is presently exempt up to 31 March 2047.

Above exemption is subject to certain conditions, including:

• notification of the foreign 
  company and the specified 
  data centre, and
• ownership and operation of 
  such data centre by an 
  Indian company.

It is now proposed as under

(i)     Condition                            requiring notification of the foreign company is proposed to be omitted;

(ii)    A specified data centre can now also be operated under a leased model, subject to prescribed conditions.

To enhance ease of doing business and provide greater operational flexibility, the law has been amended to provide that data centre operators may, instead of owning, take the data centre on lease and operate the same, thereby addressing practical challenges faced by the industry. 

Existing Clause

Proposed amendments

Rationale

Under the existing provisions, dividend income distributed by a business trust to its unit holders is exempt where the dividend is received from an SPV which has not opted for the concessional corporate tax regime.

Where the underlying SPV has opted for the concessional corporate tax regime (CTR) under sections 200/201, the exemption is presently denied and the dividend income becomes taxable in the hands of the unit holders.

In order to address the disparity in taxability of dividend income based on the taxation regime opted for by the SPV and ensure tax neutrality, clause (b) of Schedule V of the Act is proposed to be omitted.

Consequently,           dividend income distributed through a business trust shall continue to remain exempt in the hands of the unit holders irrespective of the fact whether the underlying SPV has opted for CTR or not.

This measure seeks to provide uniform tax treatment to investors in business trusts and eliminate unintended tax consequences arising from the tax regime chosen by the SPV.

Existing Clause

Proposed amendments

Rationale

Under the existing provisions of the Act, the SPVs opting for concessional tax regime are subject to surcharge at the rate of 10%

The rate of surcharge levied on income of SPVs opting for concessional taxation regime provided for in section 200 and 201 is proposed to be increased from 10% to 25%.

The additional surcharge seeks to balance the extended dividend exemption for business trust unit holders by increasing the tax burden at the SPV level.