India has introduced a series of tax changes covering corporate rates, foreign company exemptions, investment funds, business trusts and specified government securities under legislation enacted on 17 August 2026.
India published the Taxation and Other Laws (Amendment) Act, 2026 (Act No. 21 of 2026) in the Official Gazette on 17 August 2026 after receiving the President’s assent. The legislation amends the Income-tax Act, 2025 and other laws, with most provisions deemed to have come into force retrospectively from 1 April 2026.
The Act aims to amend tax rules and simplify compliance while introducing measures covering foreign companies, investment funds and specified industries.
Corporate tax rates adjusted
The Act changes the tax rates under Section 3, sub-sections 4 and 12, for domestic companies.
The revised rates are:
- 10% for domestic companies other than a special purpose vehicle (SPV) referred to in Schedule V.
- 25% for domestic companies that are SPVs referred to in Schedule V.
Electronics manufacturing exemption extended
The Act extends the income tax exemption available to foreign companies providing capital goods, equipment or tooling equipment to Indian resident contract manufacturers operating in custom bonded areas.
The exemption, previously available until tax year 2030–2031, is now available until 2040–2041. Specified electronic goods are defined to include mobile phones, laptops, all-in-one personal computers and tablets, servers and ultra-small form factor (USFF) PCs, sub-assemblies, hearables, wearables and related accessories.
Data centre exemption conditions relaxed
The legislation also relaxes conditions for foreign companies procuring data centre services from specified data centres in India. The requirements for the Central Government to notify both the foreign company and the specified data centre have been removed, with information reporting requirements applying instead.
The amendments also allow a leased model for data centre operations, removing the requirement for the Indian company to own the physical infrastructure. The exemption remains available up to 31 March 2047.
New exemptions for rough diamonds and components
From 1 October 2026, foreign diamond mining companies, sightholders, brokers, aggregators and tender and auction entities will be eligible for an exemption on income from rough diamond sales conducted in a Special Notified Zone (SNZ) in Mumbai or Surat.
The exemption, available until 31 March 2041, requires prescribed information to be maintained and furnished, while the diamonds must meet specified customs classifications and be accompanied by a Kimberley Process Certificate.
A separate exemption applies to foreign companies earning income from storing and selling components in custom bonded warehouses under section 65 of the Customs Act, 1962. The components must be sold to Indian resident contract manufacturers producing specified electronic goods on behalf of foreign companies. This exemption is also available until 31 March 2041.
Offshore investment fund rules simplified
The Act replaces the existing Schedule I conditions under section 9(12) for eligible investment funds and their fund managers. The revised rules seek to ensure that qualifying activities do not create a business connection in India.
Among the conditions, an eligible investment fund must not be resident in India, must be resident in a country or territory with an agreement under section 159(1) or (2) or in a notified jurisdiction, and must have direct investment or participation by Indian residents of no more than 5% of its corpus.
The fund must also not directly or indirectly control, manage or carry on business in India. An eligible fund manager must meet specified registration and operational conditions, while the fund must submit a compliance statement and prescribed documents within 90 days from the end of the tax year.
Business trusts and other changes
The Act removes the restriction under which dividends distributed by an SPV to unit holders of a business trust were tax-exempt only where the SPV operated under the old tax regime. The change allows the exemption to continue where an SPV moves to the new tax regime, with an additional surcharge of 15% imposed on such SPVs.
Other amendments introduce exemptions for interest and capital gains from certain Government securities for Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS), subject to reporting requirements.
Wider legislative changes
The Act also amends the Payment and Settlement Systems Act, 2007, giving the Central Government power to specify one or more electronic modes of payment by notification. This amendment took effect on 17 August 2026.
It further amends the Finance Act, 2026, including provisions on tax rates for domestic companies, and formally repeals the Income-tax (Amendment) Ordinance, 2026. Actions taken under the Ordinance are preserved and treated as having been taken under the corresponding provisions of the Act.
Overall, the amendments establish revised tax treatment for selected foreign companies, investment funds and domestic structures while extending incentives for electronics manufacturing and introducing new exemptions for the diamond and electronic component sectors. Most changes apply from 1 April 2026, with the two new exemptions taking effect from 1 October 2026.
