Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, which, among several tax-related changes, amends the statutory framework governing electronic payments in a manner that could provide greater flexibility to the government to introduce charges on certain digital payment modes in the future.
The Rajya Sabha cleared the Bill on Tuesday, following which it was returned to the Lok Sabha, completing the parliamentary approval process. The legislation had earlier been passed by the Lok Sabha.
The Bill does not impose any charge on UPI transactions. However, it changes the legal basis for the existing protection against charges on electronic payments.
At present, Section 10A of the Payment and Settlement Systems Act, 2007 provides that no bank or system provider can impose, directly or indirectly, any charge on a person making or receiving payments through electronic modes prescribed under Section 269SU of the Income-tax Act, 1961.
The amendment removes the specific reference to Section 269SU and instead provides that the no-charge protection will apply to “one or more electronic modes of payment as the Central Government may, by notification, specify.”
As a result, the Centre will have the power to determine through notification which electronic payment modes will continue to enjoy statutory protection from charges, rather than having the protected modes linked directly to the Income-tax Act.
The change has raised concerns about the possibility of a future Merchant Discount Rate (MDR) framework for UPI transactions. Under an MDR mechanism, a transaction fee is generally charged to merchants rather than consumers.
However, Finance Minister Nirmala Sitharaman, while responding to concerns in the Rajya Sabha, clarified that the amendment should not be construed as imposing any charge or tax on UPI transactions. She assured the House that UPI transactions would continue to remain free for consumers and said that no MDR framework had been finalised so far.
The legislation also makes several changes to the income-tax framework.
It amends the Income-tax Act, 2025 to rationalise conditions applicable to eligible investment funds and their fund managers, with the stated objective of encouraging fund management activity in India and providing greater tax certainty.
The Bill provides tax exemptions on interest and capital gains arising from Government securities in the hands of specified Foreign Institutional Investors and the Bank for International Settlements.
It also introduces a 15-year tax exemption for income earned from the sale of rough diamonds by specified foreign companies, including diamond miners, sightholders, brokers, aggregators and tender and auction entities, subject to prescribed conditions.
Another provision provides tax relief to foreign companies storing components in customs-bonded warehouses for supply to Indian contract manufacturers engaged in producing specified electronic goods. The exemption will be available until the tax year ending March 31, 2041.
The Bill further extends certain existing tax incentives for electronic manufacturing and relaxes conditions applicable to specified data centres.
It also repeals the Income-tax (Amendment) Ordinance, 2026, promulgated on June 5 when Parliament was not in session. Actions already taken under the Ordinance will be deemed to have been taken under the corresponding provisions of the new legislation.
According to the government’s Statement of Objects and Reasons, the amendments seek to address the economic impact of geopolitical developments, disruptions in international trade and supply chains, and the resulting global economic uncertainty.
The Bill will now be sent to the President for assent.
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