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Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, with Finance Minister Nirmala Sitharaman clarifying that the legislation does not impose any tax or transaction charge on UPI payments. The Bill retains the zero-MDR framework for consumers while giving the central government the power to decide which electronic payment modes must remain free. It also seeks to attract foreign capital, support domestic electronics manufacturing and facilitate the use of Indian data centres by foreign cloud companies. The legislation further includes tax changes for FPIs and aims to make India more attractive for global fund managers.
Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, with the Rajya Sabha clearing the legislation through a voice vote following a brief discussion and response from Finance Minister Nirmala Sitharaman.
The Bill had already been passed by the Lok Sabha in the previous week. During the discussion, Sitharaman clarified that the legislation does not introduce any tax or transaction charge on Unified Payments Interface (UPI) payments and that consumers will continue to use the digital payment system without paying a transaction fee.
She said UPI has remained free for consumers since its launch and that users would continue to make instant digital payments without any transaction charge.
The legislation proposes changes to the existing legal framework governing digital payments. It seeks to remove the linkage between the Payment and Settlement Systems Act and the Income Tax Act and gives the central government legal authority to modify the zero-Merchant Discount Rate (MDR) framework applicable to UPI and RuPay card transactions.
Currently, banks and payment system providers are not permitted to directly or indirectly charge customers for payments made through UPI and RuPay debit cards. Under the proposed changes, the central government will be able to specify through notification which electronic payment modes or transactions will continue to remain free.
Apart from the provisions related to digital payments, the Bill contains several measures aimed at improving India's position as a destination for foreign investment and financial activity. It seeks to attract more foreign capital and support domestic electronics manufacturing.
The legislation also aims to make it easier for foreign cloud service providers to use data centres in India by providing greater certainty around the applicable processes. This is expected to address procedural concerns for companies looking to operate their cloud infrastructure through Indian data centres.
The Taxation and Other Laws (Amendment) Bill, 2026, also replaces the ordinance issued earlier this year. The ordinance had provided income tax exemption on interest income and capital gains earned by Foreign Portfolio Investors (FPIs) from investments in government securities (G-Secs).
Another provision is aimed at encouraging fund managers to relocate their operations to India. The Bill reduces the number of conditions that funds need to meet to ensure that their global income is not subjected to tax in India.
The combination of changes covering digital payments, foreign portfolio investments, fund management and data-centre operations forms part of the government's broader effort to simplify the tax and regulatory framework for international investors and businesses operating in India.
Source PTI
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