The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing a series of changes designed to attract foreign investment, strengthen India’s electronics manufacturing ecosystem, and create a more flexible framework for digital payments.
The Bill amends provisions in the Income-tax Act, 2025, the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007. It also replaces the Income-tax (Amendment) Ordinance, 2026. While much of the attention has focused on the possibility of future charges on UPI transactions, the legislation also includes tax incentives for foreign investors, data centres, electronics manufacturing, and the diamond industry.
FDI, Electronics and Data Centres Get Tax Boost
One of the Bill’s key features is the extension of tax incentives for foreign companies involved in electronics manufacturing. Eligible overseas firms supplying components through bonded warehouses to Indian manufacturers will continue to receive tax benefits until March 31, 2041. The legislation also eases tax rules for foreign-owned data centres by removing certain notification requirements and expanding eligibility to leased facilities, a move expected to encourage investment in India’s fast-growing digital infrastructure sector.
Additionally, foreign institutional investors (FIIs) and the Bank for International Settlements (BIS) will receive tax relief on interest income and capital gains from investments in government securities, a measure aimed at attracting more global capital.
UPI Provision Creates Flexibility, Not Immediate Charges
The new provision in the Payment and Settlement Systems Act has attracted considerable attention since it gives the central government the discretion to determine which digital modes of payment will not incur any charges. However, the Bill does not immediately introduce any charges on UPI or reinstate the merchant discount rate (MDR). It provides the necessary provisions for the government to bring about such changes at a later point if needed, through a separate government notification.
What It Means for Businesses and Investors
The bill is expected to support various industries through reduced tax uncertainty and long-term policies. The manufacturing industry, cloud service providers, international investment firms, and companies working in special economic sectors can be provided with incentives for expanding their businesses in India. These changes might boost India’s status as an ideal place to manufacture goods, build digital infrastructure, and invest, creating jobs in the long run.
Consumers will not directly experience any changes since no digital payments taxes have been announced. The bill provides the government with enough room for more flexible policies and the continued execution of its tax reforms and industry growth approach. Businesses and investors should watch for further amendments through regulations and notifications.










