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.
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.
The new provision in the Payment and Settlement Systems Act has attracted a lot of attention since it gives the Central Government the discretion of determining the digital modes of payment that shall not incur any charges. But the Bill will not bring in any changes in terms of bringing in charges on UPI or reinstating the MDR.
It provides the necessary provisions in terms of which the government will be able to bring about such changes at a later point in time if need be. The announcement for bringing about the change is to be made through a separate government notification.
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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 in order to create jobs in the long run.
Consumers will not directly experience any changes since no digital payments taxes have been announced in the country. The bill has provided the government enough room for more flexible policies and the continued execution of its tax reforms and industry growth approach. Businesses and investors have to wait for further amendments through regulations and notifications.