The Taxation and Other Laws (Amendment) Bill, 2026

Context:

Recently, The Taxation and Other Laws (Amendment) Bill, 2026 has been passed by the Lok Sabha. The Bill replaces the Income-tax (Amendment) Ordinance, 2026 promulgated on June 5, 2026.

Objectives of the bill:

It aims to promote electronics manufacturing, attract foreign investment, strengthen India's position as a global financial and manufacturing hub, and provide legal backing for future changes to the Zero Merchant Discount Rate (Zero-MDR) framework governing UPI and RuPay transactions.

Key Provisions:

• • • Tax exemption for FIIs and BIS: Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) are exempted from income tax on interest and capital gains arising from investments in Government Securities (G-Secs) from 1 April 2026, encouraging foreign portfolio investment in India's debt market.
    • Boost to electronics manufacturing: Tax exemption is provided to foreign companies storing electronic components in customs-bonded warehouses for supply to Indian contract manufacturers of phones, laptops, servers, and other specified electronics. The benefit is available until 31 March 2041.
    • Diamond sector incentives: Foreign diamond mining companies, sightholders, brokers, and auction entities are exempted from tax on income earned from the sale of rough diamonds in notified special zones.
    • Relaxed investment fund norms: The Bill removes conditions such as minimum investors, corpus size, and investment limits for offshore investment funds managed from India, promoting India as a global fund management hub.
    • Business trusts and data centres: It rationalises taxation of REITs and InvITs by exempting certain dividend income and extends tax benefits to leased data centres operated by Indian companies.
    • Zero-MDR framework: The Bill delinks the Payment and Settlement Systems Act, 2007 from the Income-tax Act, enabling the Government to modify the Zero-MDR policy for UPI and RuPay transactions in the future.

Significance:

The Bill supports the objectives of Make in India, Digital India, and the PLI Scheme by attracting foreign capital, integrating India into global supply chains, strengthening electronics manufacturing, promoting digital infrastructure, and deepening financial markets. It also enhances policy certainty, thereby improving India's investment climate.

Challenges:

Tax exemptions may reduce short-term government revenue and could create concerns regarding preferential treatment for foreign firms. Any modification of the Zero-MDR framework must balance the financial sustainability of payment service providers with the continued affordability of digital payments for merchants and consumers.

Way Forward:

The success of the Bill depends on ensuring that tax incentives lead to tangible investments, employment generation, and technology transfer. A transparent regulatory framework, balanced tax policy, and careful implementation of any changes to the Zero-MDR regime will be essential to sustain investor confidence while protecting India's rapidly expanding digital payment ecosystem.

Conclusion:

The Taxation and Other Laws (Amendment) Bill, 2026 is a forward-looking reform that seeks to position India as a global hub for manufacturing, investment, and digital innovation. By combining tax rationalisation with sector-specific incentives, it strengthens India's long-term economic competitiveness while supporting inclusive and sustainable growth.