The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, which makes several changes to India’s digital payment, taxation and investment rules. The Bill was passed by voice vote amid Opposition protests and amends the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025 and the Finance Act, 2026.
One of the key changes concerns UPI and other digital payments. The Bill removes the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment systems.
This does not immediately introduce an MDR charge on UPI. Instead, it gives the government the legal authority to decide which electronic payment modes or transactions will remain free and whether charges can be introduced in the future.
UPI payments have so far remained free, unlike transactions through systems such as RTGS and NEFT, where service charges may apply. If MDR is introduced later, merchants could potentially have to bear charges on selected UPI transactions, although the exact rates and categories have not yet been announced.
The government said the move is aimed at creating a more sustainable revenue model for banks, payment service providers and companies supporting India’s digital payment infrastructure as UPI continues to expand.
Changes To Foreign Fund Rules
The Bill also proposes changes aimed at making India more attractive to global fund managers and foreign investors. It reduces certain conditions that offshore funds must meet to ensure their global income is not taxed in India.
The government expects these changes to encourage global fund managers to shift their operations to India, bringing investment, high-value financial activity and employment opportunities. The provisions will apply across India, including International Financial Services Centres.
Tax Relief For REITs And InvITs
Investors in business trusts such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) could also benefit from the proposed changes.
The Bill seeks to keep dividends received by investors tax-free even when the operating company moves to the newer tax regime. The government expects this measure to protect investors and encourage greater investment in India’s real estate and infrastructure sectors.
Easier Rules For Data Centres
The Bill also simplifies tax rules for data centres. Earlier provisions offered tax benefits to foreign cloud companies using Indian data centres, but they involved several government approvals.
The proposed changes remove these approval requirements and allow data centres to operate through leased facilities instead of requiring direct ownership. This could make it easier for global cloud companies to expand their presence in India and support the development of large-scale AI and cloud infrastructure.
More Support For Electronics Manufacturing
The legislation also extends tax benefits for foreign companies supplying machinery and equipment to Indian manufacturers involved in electronics production.
The benefit covers products such as mobile phones, laptops, personal computers, tablets, servers and related components. The move is expected to strengthen India’s contract manufacturing ecosystem and encourage more global companies to source and manufacture electronics in the country.
Boost For India’s Diamond Trade
The Bill proposes a 15-year tax exemption for income earned by foreign diamond miners and related businesses from the sale of rough diamonds in designated zones in Mumbai and Surat.
The proposal covers businesses such as sight holders, brokers, aggregators and auction houses. The government expects the move to encourage more rough diamond trading in India and strengthen the country’s diamond financing and trading ecosystem.
The Bill also proposes a 15-year tax exemption for foreign companies supplying components from Indian customs-bonded warehouses to local contract manufacturers. This is expected to support domestic production of smartphones, laptops, computers and servers.
Overall, the amendments seek to support the long-term sustainability of India’s digital payments network while attracting global capital, encouraging fund management activities in India, simplifying tax rules and strengthening key manufacturing and infrastructure sectors.
