I come from a background of having spent nearly 20 years persuading foreign investors to invest in India; and many of the years I spent apologizing for the paperwork they sign on the journey. I didn't feel excited when I saw the Taxation and Other Laws (Amendment) Bill, 2026, which was tabled in the Lok Sabha this week. I felt relief. It was like a complaint book had been pulled from the drawer in North Block and read.
Let's begin with the most obvious segment of my practice that it affects even the most directly: offshore fund management.
Global fund managers looking to conduct their business in India were caught in a peculiar situation for years. The transfer of the decision making to here would make the fund liable to taxes in India, although the money and the investors have not come to India. In order to avail the exemption, one had to fulfil 13 different conditions including investor concentration, corpus size, investment pattern, etc. to prevent round tripping. In reality, it proved to be very limiting: most fund managers just remained in Singapore or London and operated the India business from there. I've been to a lot of CEOs' tables where their CFOs had a plan to form an investment team here, but they didn't when they thought about the tax exposure.
The Bill reduces this to five conditions. That's not a tweak. It's the government saying that the archaic system was designed to catch a 'bad man' but instead it has smothered legitimate business. Abheet Sachdeva, of Nangia Global, got this right: This could significantly impact the fund management landscape in India, as it will be a change between fund managers coming to India and actually setting up teams here.
There's a second change that many commentators missed and that's the one I'm hearing the most calls about. The Bill treats "funds" managed from outside the IFSC in Gujarat similarly to "funds" managed from anywhere else in India, for purposes of this relief.
For years, GIFT City has been working to become a real financial centre. Each time I've recommended a client to put it together, they've said something like, “The incentives are good, but the ecosystem is still light. Eliminating the tax disparity is another deterrent to delay.
What really caught my off guard is the diamond trade provision. It took me two reads. Foreign mining companies, rough diamond sellers and brokers, sight-holders and auction houses through the notified special zones in India are now granted income tax exemption on their investment for 15 years until 2041.
The tax treatment has been making it of no use and even less sense to trade in Surat or Mumbai as compared to Dubai and Antwerp for years, all because of this.Even if the actual cutting and polishing takes place on Indian soil, trading here has become of no use for some years now, let alone being of less use in Surat/Mumbai than in Dubai and Antwerp. I hope that the diamond trading houses will treat India as something more than an assembly line and let us taste this real interest.
The Bill extends the tax exemption for FPCM for another 10 years for supply of tooling and machinery to Indian contract manufacturers and provides for complete tax exemption for 15 years for foreign component suppliers operating from customs bonded warehouse which is currently taxed under a presumptive taxation regime.
This is hardly luck when compared to the numbers in the morning PLI, published in the same newspaper. In the form of a strategy. For two years, I have heard from clients in electronics contract manufacturing that the problem is that India cannot have just in time inventory like the manufacturers do in Vietnam or Mexico. This Bill is the best answer I have seen that is anything but a figment of imagination.
There's a big hole in the drafting that I want my clients to see before they see it in a tax notice.
The Bill preserves the tax exemption for dividends received by investors from business trusts even after the operating company switches to the concessional tax regime. That's an opportunity for fund managers that is welcome flexibility, says Sameer Gupta of EY India. But as Sachdeva pointed out, the exemption as drafted doesn't come with a matching change to the withholding tax provisions.
If this is not corrected in the Bill, a non-resident investor may still be liable for tax at the source on income that is actually not taxable and only be able to claim the refund on the income through the return filing process. I have seen customers wait 18 months for refunds for much smaller amounts! That's a detail that you might find small in a Lok Sabha paper, but big when the fund has to close its books in March. When it comes to considering whether to pursue a business trust distribution, don't rush in on the headlines, but on the fine print.
The details of changes to the safe harbour provisions and the proposal to streamline and reduce the number of approvals required for foreign fund managers are perhaps the most under-discussed aspects of this Bill, and could be as significant as the numbers. To me, it's deals that fail for compliance reasons fail first, not tax rates. I've seen investment structures crumble just because the compliance team one person was operating wasn't happy with the number of approvals between signing and closing.
This is a Bill which seems to be less an increase in incentives, and more like a kind of guarantee that we live longer. I would go a step further. This is the first bill in a long time that reminds one of having actually attended a GIFT City orientation, or of waking an investment committee in New York at eleven o'clock in the night their time to explain round-tripping safeguards.
If Parliament passes the Bill as it stands and if the withholding tax gap on business trust dividends is filled before the Bill passes – then that optimism may not be fulfilled. For now, I'm advising my clients to begin the preparations around it, but to wait and see the details until it's law.