Govt tables tax amendment Bill with FII relief, electronics manufacturing push
The government tabled the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, combining relief for foreign institutional investors with fresh tax incentives for electronics manufacturing
The Bill proposes extending, to 31 March 2041, tax exemptions for foreign companies supplying machinery, tooling and components to India-based contract electronics manufacturers operating out of customs-bonded facilities
It proposes a parallel tax exemption for foreign mining companies that display rough diamonds in India's Special Notified Zones, intended to ease conditions for India's diamond cutting-and-polishing trade
A separate provision bars banks and payment system providers from levying charges on notified electronic payment modes
India's Layered Electronics Manufacturing Policy Stack
India has built up its electronics manufacturing base through a sequence of distinct instruments rather than a single scheme — production subsidies, capital-expenditure subsidies, fab-specific missions, and now targeted income-tax carve-outs for the foreign supply chain that services Indian contract manufacturers. The tax exemption in this Bill is the newest addition to that stack, operating differently from the earlier instruments.
Key Details
- The National Policy on Electronics, 2019 set a target of USD 400 billion in Electronics System Design and Manufacturing (ESDM) turnover by 2025, and aims to position India as a global ESDM hub, including in core components and chipsets
- The Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) offers a 25% capital expenditure subsidy for manufacturers of electronic components and semiconductors, addressing supply-chain gaps upstream of final assembly
- The Semicon India Programme, approved in December 2021 with an outlay of ₹76,000 crore, supports the full semiconductor value chain — design, fabrication, assembly, testing, packaging and compound semiconductors — distinct from consumer-electronics assembly
- Unlike the Production Linked Incentive (PLI) scheme, which pays a cash-linked subsidy tied to incremental production/sales, the exemption in this Bill is an income-tax carve-out for foreign equipment and component suppliers — it does not subsidise Indian manufacturers directly but removes a tax cost that would otherwise fall on their foreign supply-chain partners
The Bill's electronics provisions supplement, rather than replace, this existing policy stack — SPECS and the Semicon Mission address capital investment and fabrication capacity, while the tax exemption addresses a narrower but persistent problem: foreign equipment and component owners' exposure to Indian tax merely because their machinery sits inside an Indian contract manufacturer's bonded facility.
Special Notified Zones — Tax Treatment of Foreign Diamond Trading
A Special Notified Zone (SNZ) is a government-notified area, such as the India Diamond Trading Centre within the Bharat Diamond Bourse in Mumbai, where foreign mining companies may display uncut and unassorted (rough) diamonds for viewing, auction or sale without that activity being treated as creating a taxable presence in India — a carve-out inserted into Section 9 of the income-tax law specifically for this purpose.
Key Details
- The India Diamond Trading Centre (IDTC)-SNZ, set up jointly by the Gem and Jewellery Export Promotion Council and the Bharat Diamond Bourse, was inaugurated in December 2015; the Section 9 exemption for foreign diamond miners' display activity in such zones was first introduced via the Union Budget, 2016
- All rough diamonds handled in an SNZ must be accompanied by a Kimberley Process Certificate; India was a founder member of the Kimberley Process Certification Scheme (2003), the international mechanism to prevent "conflict diamonds" from entering legitimate trade
- Surat, Gujarat cuts and polishes an estimated 80–90% of the world's rough diamonds by volume, and India accounts for roughly three-fourths of global polished-diamond exports by value, making tax certainty for the upstream rough-diamond supply chain a matter of significant export-sector interest
- The exemption applies only to display/viewing activity confined to the notified zone — actual sale, cutting or export from outside the SNZ framework remains subject to ordinary tax and customs treatment
The Bill's diamond-industry provisions extend this decade-old Special Notified Zone framework, mirroring the electronics carve-out's underlying logic — removing Indian tax exposure for foreign entities whose goods physically enter India for trade or manufacture, so as to keep India competitive as a hub for both electronics assembly and diamond processing.
Payment and Settlement Systems Act, 2007 — Institutional Architecture for Digital Payments
The Payment and Settlement Systems Act, 2007 is the parent statute governing all payment systems operating in India, including UPI, RTGS, NEFT and card networks, with the Reserve Bank of India as the designated regulator with sole authority to permit their operation.
Key Details
- Section 4 of the Act bars any person, domestic or foreign, from commencing or operating a payment system in India without RBI authorisation under Section 5
- Regulatory and supervisory powers under the Act are exercised through the Payments Regulatory Board (PRB), chaired by the RBI Governor with Deputy Governors and nominated Central Board directors as members; the PRB replaced the earlier Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) when the Payments Regulatory Board Regulations, 2025 took effect in May 2025
- The Act's Section 10A already bars banks/system providers from charging Merchant Discount Rate (MDR) on specified electronic modes such as UPI and RuPay debit cards
- The Bill's proposed amendment empowers the Central Government to independently notify which electronic payment modes attract the no-charge mandate, delinking this power from cross-references to income-tax provisions and giving the government more direct control over which payment rails remain cost-free for merchants
This amendment is an institutional/architectural change — clarifying who holds the power to designate no-charge payment modes — rather than a change to which modes are currently exempt, reflecting the broader industrial-policy theme of the Bill: reducing friction costs (tax or transaction) across the channels that connect foreign capital, foreign supply chains and domestic digital infrastructure to the Indian economy.
- Electronics tax exemption for foreign equipment/component suppliers to bonded contract manufacturers: proposed extension to 31 March 2041
- National Policy on Electronics, 2019 target: USD 400 billion ESDM turnover by 2025
- SPECS scheme capital expenditure subsidy: 25%
- Semicon India Programme: approved December 2021, outlay ₹76,000 crore
- Special Notified Zone (Section 9) exemption for foreign diamond miners: first introduced in Union Budget, 2016; India Diamond Trading Centre-SNZ inaugurated December 2015
- Surat's share of world rough diamonds cut and polished by volume: approximately 80–90%; India's share of global polished-diamond exports by value: approximately 75–80%
- India was a founder member of the Kimberley Process Certification Scheme (2003)
- Payment and Settlement Systems Act, 2007, Section 4: RBI is the sole authority for permitting operation of a payment system in India
- Payments Regulatory Board (RBI's payment-system regulatory body) took effect May 2025, replacing the earlier BPSS