India Approves Tax & Payment System Reforms
By Business Desk
President Murmu approves Taxation and Payment Systems Act amendments, boosting foreign investment and digital payments in India. Learn about the key changes.
President Droupadi Murmu has formally approved two significant legislative changes: the Taxation and Other Laws (Amendment) Act, 2026, and an amendment to the Payment and Settlement Systems Act of 2007. These bills, passed by Parliament on August 10, 2026, received presidential assent on August 17, 2026, according to a Ministry of Law gazette notification.
Understanding the Taxation Amendment
This new Taxation and Other Laws (Amendment) Act, 2026, aims to stimulate foreign capital inflow and bolster domestic electronics manufacturing. It also seeks to streamline operations for foreign cloud companies utilizing Indian data centers by ensuring ‘process certainty’.
The Act introduces several key provisions designed to attract investment and support manufacturing within India. These measures are specifically crafted to provide clarity and long-term stability for foreign entities operating in the country.
- Income tax exemption until 2040-41 for foreign companies engaging contract manufacturers in India for electronic goods, including mobile phones and laptops.
- A 15-year income tax exemption for foreign companies storing components in customs warehouses destined for Indian contract manufacturers.
- Replaces a June 5 ordinance, offering I-T exemption on interest income and capital gains for FPIs investing in G-Secs.
- Eases conditions for fund managers relocating to India, preventing their global income from being taxed domestically.
Changes to Payment and Settlement Systems
The amendment to the Payment and Settlement Systems Act, 2007, grants the government crucial legal authority regarding the zero-Merchant Discount Rate (MDR) framework. This framework currently applies to UPI and RuPay card transactions.
With this amendment, the government can now issue notifications to specify which electronic payment modes or transactions will be exempt from MDR charges. Finance Minister Nirmala Sitharaman has confirmed that UPI payments will remain free for consumers.
Any future MDR will exclusively apply to specific categories of merchant transactions, rather than individual consumers. The UPI and Services Steering Committee, led by the NPCI, will hold the responsibility for determining these new MDR charges.