NEW DELHI: India’s lower house of Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, on Thursday, clearing a package of reforms that would allow the government to levy fees on digital payments, extend major tax incentives for electronics manufacturers through 2040, and ease rules for offshore fund managers looking to base operations in India.
The Lok Sabha approved the Bill through a voice vote without debate after Opposition members disrupted proceedings by sloganning over unrelated issues, including alleged irregularities at the Ram Temple in Ayodhya.
Meanwhile, it is the seventh bill cleared in the current Monsoon Session and the fifth to pass without discussion, PTI reported.
The Bill amends three laws: the Payment and Settlement Systems Act of 2007, the Income-tax Act of 2025, and the Finance Act of 2026 and replaces an ordinance (a temporary executive order issued when Parliament is not in session) that the government issued on June 5.
UPI charges: The Door is Ajar, Not Open
The most politically sensitive change concerns digital payments. The Bill removes a provision in Section 10A of the Payment and Settlement Systems Act that explicitly barred banks and payment providers from charging any fee on transactions through payment modes including UPI and RuPay.
Under the new language, the government may designate by notification which digital payment modes remain free for users. The zero-fee principle which was known as zero Merchant Discount Rate (MDR), the processing fee a merchant’s bank charges to accept a payment is preserved for now, but the choice of which tools keep that protection moves entirely to the executive.
Reserve Bank of India Governor Sanjay Malhotra, speaking Wednesday, called it “premature” to discuss imposing MDR on digital payments but acknowledged that payment infrastructure must be funded by someone. Banks and payment industry players have long argued that UPI’s free model is commercially unsustainable.
Electronics and Data Centres Get a Longer Runway
The Bill extends a 15-year income-tax exemption for foreign companies using Indian contract manufacturers to produce electronics including mobile phones, laptops, personal computers, tablets, servers and their components and pushing the deadline from 2030-31 to 2040-41.
Whereas, a parallel exemption is introduced for foreign companies storing electronic components in customs- bonded warehouses (duty-suspended storage facilities for imported goods) for supply to Indian factories.
On data centres, the Bill removes the requirement that each foreign cloud company and each Indian data centre be separately notified to qualify for benefits. It also allows data centres to operate on a lease model rather than only under direct ownership.
Fund Managers, Bond Markets and Business Trusts
The Bill cuts the conditions offshore investment funds must satisfy to avoid being taxed in India from 13 to five, making it easier for global fund managers, including single-investor and family-office structures to operate from India or GIFT-IFSC, the country’s international financial centre.
A new exemption for Foreign Portfolio Investors (large cross-border institutional investors) on interest income and capital gains from Indian government securities is designed to deepen the sovereign bond market. The Bill also introduces a 15-year tax holiday for foreign companies selling rough diamonds through India’s Special Notified Zones.
On business trusts such as REITs and InvITs (vehicles that pool investor money into real estate or infrastructure), the Bill removes an anomaly that made dividends taxable for investors in some cases. All distributions will now be tax-free for unitholders. To protect the tax base, the underlying companies within these trusts will face a higher 25% surcharge if they opt for the concessional corporate tax rate, compared with 10% for ordinary firms.
Finance Ministry officials said the measures collectively aim to make India a more predictable destination for global capital, manufacturing and business.
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