Tax Bill replaces 2026 ordinance, takes effect April 1

It introduces specific tax exemptions for foreign companies and investors in sectors like electronics, diamonds, and government securities, while also changing how electronic payments are defined.

Who it concerns: Foreign companies, Foreign Institutional Investors (FIIs), the Bank for International Settlements, eligible investment funds established outside India, fund managers, domestic companies (specifically Special Purpose Vehicles), and entities involved in the sale of rough diamonds or manufacturing of specified electronic goods.

What the bill does

• Amends the Payment and Settlement Systems Act, 2007 to allow the Central Government to specify electronic payment modes via notification, replacing the previous reference to the Income-tax Act.
• Substitutes Schedule I of the Income-tax Act, 2025 to define conditions under which eligible investment funds (established outside India) do not constitute a business connection in India, including limits on Indian resident participation (max 5%) and requirements for fund managers.
• Amends Schedule IV of the Income-tax Act, 2025 to provide tax exemptions for interest and capital gains on Government securities for Foreign Institutional Investors and the Bank for International Settlements.
• Introduces new exemptions in Schedule IV for income from the sale of rough diamonds by foreign companies in notified special zones, and for storage of components in custom bonded areas for contract manufacturing of specified electronic goods (mobile phones, laptops, servers, etc.), valid until the tax year ending March 31, 2041.
• Amends the Finance Act, 2026 to set a 10% tax rate for domestic companies other than Special Purpose Vehicles (SPVs) and a 25% tax rate for domestic SPVs under sections 200 or 201.
• Repeals the Income-tax (Amendment) Ordinance, 2026, deeming actions taken under the ordinance to be valid under this Act.

Also in the document

• The Bill is introduced to replace the Income-tax (Amendment) Ordinance, 2026, which was promulgated by the President under Article 123 of the Constitution due to urgent circumstances.
• The Bill is deemed to have come into force on April 1, 2026.
• Certain new exemptions (for rough diamonds and component storage) apply with effect from October 1, 2026.
• The Bill cites evolving geopolitical developments and disruptions in international trade as the reason for these immediate taxation measures.