This paper will outline, discuss and suggest changes in various provisions of the Income Tax Act, 1961, applying to foreign investments. Chapter II of this paper explores the general underlying principles of the Indian tax system. Chapter III discusses the tax liability of foreign personnel in India and special tax incentives granted to foreign technicians. Chapter IV discusses the system of corporate taxation or “resident” and non-resident” companies and tax liability of foreign collaborators. Special attention is paid to the liability arising out of various trading activities of non-resident companies in India and many problems of judicial determination relating to such activities. Investment and savings incentives are discussed in Chapter V. Chapter VI discusses to what extent U.S. inventor is entitled to tax relief under U.S. foreign tax credit laws. The paper concludes with taking an overall view of the tax impact on foreign investments and to what extent foreign companies can benefit from India’s effort to attract investments.