New Tax Bill sweetens deal for electronics makers, global investors
The Taxation and Other Laws Amendment Bill, 2026 proposes extending tax incentives for electronics manufacturing to 2041.
The Bill proposes easing compliance rules for foreign portfolio investors and offshore fund managers operating in or from India.
The Bill proposes raising the surcharge applicable to certain special purpose vehicles (SPVs) under the new tax regime.
The changes are aimed at improving India's attractiveness for long-horizon electronics manufacturing investment and global fund management activity.
Tax Holiday for Contract Electronics Manufacturing
To encourage global electronics brands to manufacture in India through domestic contract manufacturers, the Income Tax Act provides a specific exemption for foreign companies that supply capital goods, equipment, or tooling to an India-based contract manufacturer operating in a customs-bonded manufacturing facility. This removes a tax barrier that previously discouraged foreign OEMs from routing high-value equipment through Indian bonded units.
Key Details
- The exemption, introduced via the Finance Bill, 2026, currently runs up to tax year 2030-31 for income earned by the non-resident equipment supplier from such bonded-manufacturing arrangements.
- Non-residents providing services or technology for setting up an electronics manufacturing facility in India, who opt for presumptive taxation, have also been excluded from Minimum Alternate Tax (MAT) applicability.
- Customs-bonded manufacturing itself operates under the Manufacture and Other Operations in Warehouse Regulations (MOOWR), 2019, which allows duty deferral on imported inputs/capital goods until the finished goods are cleared for sale.
- Extending such exemptions to 2041 (a horizon of roughly 15 years) mirrors the long-gestation nature of electronics and semiconductor investment, similar to the tax holiday already extended to 2047 for data-centre-linked services under the same Budget cycle.
Extending the bonded-manufacturing tax exemption well beyond 2030-31 gives global electronics companies a longer investment horizon, reinforcing India's Production Linked Incentive (PLI) and Semicon India Programme push to build durable electronics and semiconductor manufacturing capacity.
Section 10(23FE) — Tax Exemption for Sovereign Wealth and Pension Funds
Section 10(23FE) of the Income Tax Act, in force since April 2020, exempts specified sovereign wealth funds and pension funds from tax on dividend, interest, and long-term capital gains income earned from investments in India's infrastructure sector, to attract long-term "patient capital" for projects such as roads, logistics parks, and data centres.
Key Details
- The exemption's sunset clause was extended by the CBDT from March 31, 2025 to March 31, 2030, a five-year extension.
- Eligible investors must meet conditions on ownership, non-commercial activity, and restrictions on loans/advances to related parties.
- The benefit indirectly supports domestic retail investors as well, since these funds often invest through InvITs (Infrastructure Investment Trusts) and REITs (Real Estate Investment Trusts).
The Bill's move to "ease rules for foreign investors and fund managers" builds on this existing patient-capital framework, reducing friction for the same class of long-term institutional investors the Section 10(23FE) regime was designed to attract.
Section 9A — Offshore Fund Manager Safe Harbour Regime
Section 9A of the Income Tax Act shields an "eligible investment fund" from being treated as tax-resident or having a business connection in India merely because its "eligible fund manager" is located in India, addressing a longstanding concern that had pushed fund management activity for India-focused funds offshore.
Key Details
- Eligibility conditions cover fund residence, corpus size, investor diversification (broad-basing), and a minimum remuneration payable to the India-based fund manager, who must be SEBI-registered as a portfolio manager or investment adviser.
- Budget 2025 extended the Section 9A sunset to March 31, 2030 and relaxed several conditions specifically for fund managers operating from GIFT City's International Financial Services Centre (IFSC).
- The IFSC at GIFT City, Gujarat operates under the International Financial Services Centres Authority (IFSCA), a unified regulator established in 2020 for banking, insurance, capital markets, and fund management within the IFSC.
Easing rules for "foreign investors and fund managers" is consistent with the ongoing relaxation of Section 9A conditions, intended to make it commercially attractive for global fund managers to relocate their India-dedicated fund management operations onshore, particularly to GIFT City.
Surcharge Structure Under the New Tax Regime
Surcharge is an additional levy on the income tax payable, applied progressively as total income crosses specified thresholds, and its treatment differs by taxpayer category (individual, company, trust/AOP) and by the type of income earned (capital gains vs. business income).
Key Details
- Under the new tax regime, the peak surcharge for individuals is capped at 25%, capping the effective maximum tax rate at about 39% instead of 42.74% under the old regime's higher surcharge slabs.
- For Category III Alternative Investment Funds (AIFs) structured as trusts — a common SPV structure for pooled investment vehicles — income is taxed at the fund level (no pass-through), with surcharge historically capped at 25% for trusts opting into the new regime.
- Capital gains under Sections 111A/112A (listed equity) and dividend income enjoy a lower surcharge cap of 15%, regardless of total income level.
- Surcharge thresholds for AY 2026-27 kick in above ₹50 lakh total income for individuals and above ₹1 crore for most business entities/companies.
Raising the surcharge on "certain SPVs" likely targets specific trust or AOP-based investment structures (such as Category III AIF trusts) that had been availing the lower capped surcharge, narrowing what had become a relatively favourable rate compared to companies routing the same investment activity.
- Proposed extension of electronics contract-manufacturing tax exemption: to 2041 (from the earlier cutoff of tax year 2030-31).
- Section 10(23FE) SWF/pension fund exemption sunset: extended to March 31, 2030.
- Section 9A fund manager regime sunset: extended to March 31, 2030, with relaxed conditions for GIFT City-based managers.
- New tax regime peak surcharge for individuals: capped at 25% (effective max rate ~39%).
- Surcharge cap on listed-equity capital gains/dividend income: 15%, irrespective of income level.
- Related tax holiday for data-centre-linked services (same Budget cycle): extended to 2047.