India extends tax certainty for electronics manufacturing equipment until 2041, aligning policy with real industrial investment cycles
NEW DELHI: Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws Amendment Bill 2026 in the Lok Sabha on August 4, a wide-ranging piece of legislation that extends tax certainty across several strategically important sectors through to 2041 and beyond. The bill formally replaces an earlier ordinance while introducing structural reforms to electronics manufacturing incentives, fund management rules, data centre taxation and digital payments regulation.
Rather than a series of isolated tweaks, this bill reflects a coherent long-term strategy, moving India away from short-term fixes toward the kind of multi-decade policy certainty that global investors genuinely need before committing significant capital.
A Major Win for Electronics Manufacturing
Perhaps the most consequential change extends tax exemptions for foreign companies supplying machinery and tooling to Indian contract manufacturers by a full decade, pushing the sunset date to 2041. This matters because global manufacturing equipment typically depreciates over 15 to 20 year cycles, far longer than the five year horizon of existing production incentive schemes. By aligning tax policy with these realistic industry timelines the government is giving global manufacturers genuine confidence to anchor expensive machinery in India for the long haul.
Equally significant is a new 15 year tax exemption for foreign companies storing electronic components in customs-bonded warehouses here in India. This directly solves a real problem, foreign suppliers previously hesitated to maintain component stockpiles near Indian factories for fear of triggering unexpected tax liabilities. Removing that friction should encourage vendor-managed inventory hubs to spring up closer to India’s manufacturing clusters, cutting lead times and strengthening local supply chains exactly where they are needed most.
Bringing Fund Managers Home
The bill also delivers a long-awaited simplification for India’s asset management industry. Previous safe harbour rules for offshore investment funds carried thirteen rigid conditions, including a minimum 25 investor requirement and strict portfolio diversification limits, that effectively pushed India-focused fund managers to operate out of Singapore, Dubai or Mauritius instead of Mumbai or Bengaluru.
By reducing this to just five core conditions while retaining sensible safeguards like a five percent cap on Indian resident holdings, the reform brings India’s rules much closer to leading global financial centres. This genuinely levels the playing field, allowing Indian fund managers to compete on equal footing with their counterparts in Singapore and Hong Kong, and could meaningfully encourage more asset management activity to relocate onshore.
Removing Friction for Data Centres and Cloud Infrastructure
For India’s rapidly growing data centre sector the bill eliminates a genuinely burdensome requirement, individual government notifications previously needed for both foreign cloud companies and domestic data centre facilities to access tax exemptions. Replacing this with straightforward statutory compliance removes a significant administrative bottleneck at a time when global hyperscalers are actively expanding infrastructure across India.
The bill also recognises modern leasing arrangements for data centres rather than requiring outright ownership, reflecting how the industry actually operates today, while extending exemptions through to 2047 giving operators exceptional long-term visibility for planning major capital investments.
Supporting Bond Markets and Retail Investors
The legislation formalises tax exemptions on interest and capital gains for foreign institutional investors and the Bank for International Settlements investing in Indian government securities, measures first introduced through an emergency ordinance in June to help stabilise markets during a period of global volatility. Making these permanent through proper legislation offers considerably more durable confidence to international bond investors.
Retail investors in real estate and infrastructure trusts also benefit from a thoughtful fix, the bill restores tax-free dividend distributions for unit holders regardless of which corporate tax regime the underlying special purpose vehicle chooses, ensuring ordinary investors don’t lose out due to a technical corporate tax election made at the SPV level.
A Practical Update to Digital Payments Rules
On digital payments the bill decouples merchant fee rules from rigid tax law, giving the government flexibility to protect small merchants with continued zero-fee UPI transactions while potentially allowing sustainable fee structures for larger commercial transactions. This kind of calibrated approach could help ensure India’s payment infrastructure remains financially sustainable for the acquiring banks and payment providers who have absorbed processing costs for years under the blanket zero fee mandate.
Building a More Predictable Investment Climate
Taken together this bill represents thoughtful, forward-looking policy design that trades short-term administrative flexibility for the kind of long-term certainty that genuinely attracts patient global capital. By extending exemptions to match real industry timelines, simplifying compliance across fund management and data infrastructure, and protecting retail investors along the way, India is positioning itself as a considerably more predictable and attractive destination for the multi-decade investments that manufacturing, finance and digital infrastructure require.
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