Government Introduces Tax Reform Bill To Boost Investment Environment

Why in the News ?

The Union Government has introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha to simplify tax provisions, attract foreign investment from institutional investors and asset managers, promote data centre growth, strengthen fund management, and support the Make in India initiative while addressing evolving investor preferences and ethical considerations in investment decisions.

Key Provisions of the Taxation and Other Laws (Amendment) Bill, 2026:

• The Finance Minister introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha to improve the investment climate and facilitate ease of doing business for international investment funds and domestic asset managers.
• The Bill proposes amendments to:

○   Payment and Settlement Systems Act, 2007

○   Income-tax Act, 2025

○   Finance Act, 2026

• A major proposal is the simplification of tax exemptions for data centres, removing multiple government approval requirements previously applicable to foreign cloud companies using Indian data centres, thereby supporting sustainable business practices and green economy companies.
• The Bill also permits leased operation of data centres, replacing the earlier requirement of direct ownership, thereby encouraging greater infrastructure investment and aligning with ethical standards for sustainable investing.
• These reforms aim to strengthen India’s position as a preferred destination for digital infrastructure and global technology investments, catering to purpose-driven investing and thematic investing trends.

Measures to Promote Investment and Ease of Doing Business

• The Bill simplifies taxation rules for foreign investment funds and international investment funds, allowing fund managers to operate from India without automatically making the foreign fund taxable in India, thereby supporting equity investment strategies and structured investment solutions.
• Existing conditions governing offshore fund management have been rationalized, while safeguards against tax avoidance and round-tripping of funds remain in place, addressing non-financial risks and ethical investment criteria.
• The amendment restores the tax exemption on dividends distributed by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to investors, even when operating companies adopt the new tax regime, benefiting institutional investors and passive investment products.
• These reforms are expected to:

○   Attract greater foreign capital from asset managers and institutional investors.

○   Strengthen India’s financial services ecosystem and enhance market valuation.

○   Promote the Make in India initiative through responsible investment products.

○   Improve India’s competitiveness as an international investment destination, accommodating ethical preferences and values-based screening.

• The proposed changes reflect the Government’s objective of creating a simplified, predictable, and investment-friendly tax regime that supports ethical investing and social responsibility while maintaining market capitalisation growth.