India’s new 15-year tax break could unlock global rough diamond trade
The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing a 15-year income-tax exemption for eligible foreign companies selling qualifying rough diamonds through notified Special Notified Zones (SNZs) in India
The exemption is inserted as entry 13F in Schedule IV to the Income-tax Act, 2025, and applies from 1 October 2026 through 31 March 2041
The provision covers foreign entities engaged in the rough diamond trade — including miners, brokers, aggregators, auction operators, and sightholders — who route sales through SNZs such as those at the Bharat Diamond Bourse (Mumbai) and the Surat Diamond Bourse
The measure is intended to position India as an alternative rough-diamond trading centre to Dubai and Antwerp, while eligible companies must meet prescribed reporting requirements to claim the exemption
Special Notified Zone (SNZ) — Origin and Framework
A Special Notified Zone is a customs-bonded facility, distinct from a Special Economic Zone (SEZ), created to let foreign mining companies (FMCs) bring rough diamonds into India for display, sorting, and now sale, without those activities alone creating a taxable "business connection" in India. The concept originated to counter the risk that foreign diamond miners would avoid holding viewings/sales in India for fear of unintended tax liability.
Key Details
- SNZs were first created around 2015 to allow FMCs to display uncut/rough diamonds in India; Budget 2016 amended Section 9 of the Income-tax Act, 1961 to clarify that mere display of rough diamonds in an SNZ (without sorting or sale) does not create taxable income accruing in India
- The 2026 amendment goes further — it grants a full income-tax exemption on income from actual sale (not just display) of rough diamonds by eligible foreign companies operating through an SNZ, for 15 years (1 October 2026 to 31 March 2041)
- Existing/upcoming SNZs are located within the Bharat Diamond Bourse, Mumbai, and the Surat Diamond Bourse, Surat — the latter positioned as India's largest such zone
- Eligible entities: miners, brokers, aggregators, auction operators, and sightholders (entities designated by major mining companies to access rough diamond allocations)
This Bill converts the SNZ from a "display-only, tax-neutral" facility into a genuine sales hub by exempting the sale income itself for 15 years, a substantially stronger tax incentive than the 2016 Section 9 clarification.
Income-tax Act, 2025 — New Direct Tax Code
The Income-tax Act, 2025 is India's new principal direct-tax legislation, restructured and simplified in language and layout (using Schedules to house time-bound/list-based exemptions) but retaining continuity with the Income-tax Act, 1961 that it replaces.
Key Details
- The 2025 Act reorganised exemptions and provisions into Schedules for clarity — the diamond-trade exemption is inserted as entry 13F in Schedule IV, which houses income exempt under specified conditions
- The Taxation and Other Laws (Amendment) Bill, 2026 is a further amending statute that inserts new provisions (including 13F) into the 2025 Act after its enactment
- The government has stated the recodification aimed to reduce litigation and improve readability without altering the substantive tax base significantly
The rough-diamond exemption illustrates how sector-specific tax incentives are now implemented through Schedule insertions under the new Act, rather than as standalone notifications under the old 1961 Act framework.
India's Diamond Cutting and Polishing Industry
India, and Surat in particular, dominates the global diamond cutting and polishing trade by volume, though it has historically imported rough diamonds rather than trading them as a marketplace — a gap this reform seeks to close.
Key Details
- Surat accounts for roughly 90% of global diamond cutting and polishing by volume (around 60% by value, since India specialises in smaller/lower-value stones)
- The industry body representing diamond and jewellery exporters is the Gems and Jewellery Export Promotion Council (GJEPC)
- Global rough-diamond trading has traditionally been concentrated in Antwerp (Belgium) and Dubai (UAE), both of which offer tax-favourable trading zones; India's SNZ exemption is explicitly framed as competing with these hubs
- GST reforms in 2025 also provided relief to the diamonds and jewellery sector, reducing input costs alongside this income-tax measure
Since India already processes the majority of the world's rough diamonds for cutting/polishing, enabling tax-free sale of rough stones within India (rather than only display) aims to shift the trading/auction function itself from Antwerp/Dubai to Mumbai and Surat.
- New exemption period: 15 years, effective 1 October 2026 to 31 March 2041
- Legal basis: entry 13F, Schedule IV, Income-tax Act, 2025, inserted via the Taxation and Other Laws (Amendment) Bill, 2026
- Eligible entities: foreign miners, brokers, aggregators, auction operators, and sightholders selling through an SNZ
- SNZ locations: Bharat Diamond Bourse (Mumbai); Surat Diamond Bourse (Surat) — the latter positioned as India's largest SNZ
- Prior framework: Budget 2016 amendment to Section 9, Income-tax Act, 1961 — exempted only display (not sale) income of foreign mining companies in SNZs
- Surat's share of global diamond cutting/polishing: approximately 90% by volume
- Bill status: passed by the Lok Sabha; requires Rajya Sabha passage and Presidential assent before taking effect