Future MDR for High-Value Digital Transactions Only: FM

Finance Minister Nirmala Sitharaman announced that any future Merchant Discount Rate (MDR) on digital payments will apply exclusively to a limited category of high-value merchant transactions. This decision ensures that consumers and small businesses, including street vendors and kirana stores, will continue to use the Unified Payment Interface (UPI) without any transaction charges.

The Taxation and Other Laws (Amendment) Bill, 2026, which allows for the introduction of MDR, has successfully passed the Lower House and now awaits Presidential approval. A dedicated committee will subsequently decide on the specific implementation details of this new MDR framework.

Understanding MDR’s Targeted Application

Sitharaman clarified that no MDR framework has been finalized yet, emphasizing that the majority of low-value merchant transactions will certainly remain free. She drew parallels with existing card payment charges, where merchants typically pay **1.5-2%** or more on credit cards and up to **0.90%** on debit cards.

The minister explained that establishing a sustainable revenue stream through such charges could foster crucial innovation within the UPI ecosystem. She noted that international examples, including **Australia**, **Brazil**, and **China**, already feature merchant payment acceptance charges in their respective faster payment systems.

The Unified Payment Interface processed a remarkable **2,366 crore** transactions in July 2026, amounting to a total value of **₹29.9 lakh crore**. This critical payment system is currently available in **11 countries**, underscoring the imperative for a sustainable, safe, and resilient UPI model benefiting India.

Broader Incentives in the Amendment Bill

Beyond the UPI framework, the Taxation and Other Laws (Amendment) Bill, 2026, also introduces significant tax incentives aimed at bolstering electronics manufacturing within India. These measures are designed to attract substantial investments and generate employment across the sector.

The Bill grants tax exemptions to foreign companies on income derived from supplying capital goods, equipment, and tools to contract manufacturers in India. This provision is expected to significantly benefit major global players like **Apple**, which supplies components to manufacturers such as **Foxconn** in the country. The exemption, proposed for **15 years**, allows foreign companies to store components in customs-bonded facilities for timely supply, fostering a comprehensive electronics manufacturing ecosystem for products like laptops, personal computers, tablets, servers, and mobile phones.

Additionally, the Bill proposes exemptions from capital gains and interest on investments in specified government securities for **Foreign Institutional Investors (FIIs)** and the **Bank for International Settlements (BIS)**. It also offers an exemption for foreign companies procuring data center services from specified data centers, aiming to provide long-term certainty until **March 31, 2047**, for significant investments in this sector. This particular measure will enhance the ease of doing business for cloud service providers and promote a larger ecosystem of Indian data centers, including those focused on AI.

Finally, the government is proposing specific measures to attract the wholesale diamond trading business to India, an industry currently concentrated in places like **Dubai**. This initiative seeks to benefit India’s labor-intensive diamond industry by improving accessibility for Indian buyers and fostering a robust financing ecosystem for diamond trading.