The three instruments
| Instrument | Date | What it did |
|---|---|---|
| Budget 2026-27 | Presented 1 Feb 2026 | Proposed the measures below, with effect from tax year 2026-27 unless stated |
| Finance Act 2026 (No. 4 of 2026) | Assent 30 Mar 2026 | Enacted the Budget, with changes made in Parliament: it confined the extra promoter tax to Companies Act buy-backs and raised the start-up turnover limit |
| Taxation and Other Laws (Amendment) Act 2026 (No. 21 of 2026) | Assent 17 Aug 2026 | Replaced a June 2026 ordinance; deemed in force from 1 Apr 2026 |
Tax year 2026-27 is also the first year under the Income-tax Act 2025; section numbers below are from that Act. See the Income-tax Act 2025.
Tax holiday: data centres to 2047
Income of a notified foreign company from procuring data-centre services from a specified data centre in India is exempt to the tax year ending 31 March 2047. The conditions stated are:
- Indian users are served only through an Indian reseller;
- the foreign company may not own or operate the data centre;
- the operator must be an Indian company;
- prescribed conditions and filings apply.
The amending Act of August 2026 widened the data-centre and electronics exemptions beyond the Finance Act text.
Transfer pricing: one IT safe harbour at 15.5%
Software, ITeS, KPO and contract R&D become one category with a 15.5% margin on cost. The eligibility threshold rises from ₹300 crore to ₹2,000 crore; approval is automated and can last five years. Unilateral APAs for IT services are to be fast-tracked, aiming to conclude within two years. A 15% cost-plus safe harbour for related-party data-centre services was announced; confirm it has been notified. See transfer pricing.
Old regime: MAT becomes a final 14% tax
For companies staying in the old regime, MAT (s.206) falls from 15% to 14% of book profit and becomes final: no new credit arises from 1 April 2026. Credit built up earlier is usable only after moving to the new regime, capped at a quarter of the year’s tax. Corporate tax rates were otherwise left unchanged, and no replacement was offered for the closed 15% new-manufacturing regime (s.201). See corporate tax.
GIFT City IFSC: 100% deduction for 20 years out of 25
The 100% deduction for IFSC units (s.147) now runs for 20 consecutive years out of 25, up from 10 out of 15. Offshore banking units get 20 consecutive years. Budget 2026-27 also proposed a 15% rate on IFSC business income after the deduction period; the Finance Act 2026 did not enact it.
Electronics: bonded supply chains, to March 2041
- Foreign suppliers of tooling or capital goods to a contract manufacturer in a bonded area: exempt to tax year 2040-41.
- Bonded-warehouse components sold to such makers: exempt from 1 October 2026 to 31 March 2041, with prescribed reporting.
These sit alongside bonded manufacturing under s.65 of the Customs Act; see GST and customs.
Customs
- Authorised Economic Operators get duty deferral of 30 days.
- Advance rulings are valid for five years.
Capital markets: buy-backs, STT and government bonds
| Measure | Position from tax year 2026-27 |
|---|---|
| Buy-backs | Taxed as capital gains in the shareholder’s hands from 1 April 2026, no longer as dividend |
| Promoter tax on Companies Act buy-backs | 22% for Indian-company promoters and 30% for others, including a foreign parent, before surcharge and cess |
| Securities transaction tax | 0.05% on futures and 0.15% on options |
| FIIs’ income on government securities | Exempt, subject to prescribed filings (amending Act, August 2026) |
See withholding and capital gains.
Other measures in the two Acts
- Start-ups: the turnover cap for the s.140 tax holiday is ₹300 crore from 1 April 2026, for companies or LLPs incorporated before 1 April 2030.
- Offshore funds managed from India: the amending Act dropped the 25-member, 10% single-investor and ₹100 crore corpus tests; Indian residents may hold up to 5% of the fund. See international tax.
- Transfer-pricing report: the penalty for not furnishing the s.172 accountant’s report was replaced with a fee; the report remains mandatory.
- Decriminalisation: the Budget proposed decriminalising further income-tax defaults, such as non-production of books of account, with a fine only for minor offences; confirm enactment.
- Schemes announced: Biopharma SHAKTI, a Container Manufacturing Scheme, rare-earth corridors, three chemical parks and a one-time SEZ domestic-sale facility. See central schemes.
What to check next
- For a cloud or data-centre business, confirm notification as a “notified foreign company” and the reseller and operator conditions before relying on the 2047 exemption.
- Test whether each Indian service entity is within the ₹2,000 crore threshold for the 15.5% safe harbour.
- If the Indian company holds MAT credit from before 1 April 2026, model when a move to the new regime lets it be used.
- Confirm which amending-Act measures apply retrospectively from 1 April 2026 to transactions already completed.
- Track the notifications that several Budget proposals still depend on; see recent changes.