India’s parliament has approved a comprehensive tax and payments law aimed at boosting manufacturing, attracting foreign investment, and evolving the country’s digital financial landscape amid new subsidies and potential transaction fees.
India’s parliament has passed a wide-ranging tax and payments bill designed to support manufacturing, draw foreign capital and reshape parts of the country’s digital finance architecture. According to ClearIAS, the Taxation and Other Laws (Amendment) Bill, 2026, was approved by the Lok Sabha on August 6 and updates several statutes, including the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007.
One of the bill’s most significant elements is a longer tax incentive for electronics manufacturing. The measure expands relief for overseas firms supplying capital goods or using Indian factories for contract manufacturing and explicitly names products such as mobile phones, laptops, servers and wearables. The incentive window is being extended to 2040-41, a move intended to strengthen India’s position in global supply chains and encourage more local value addition, exports and employment, even as analysts caution that the policy will matter most if it leads to component production and technology transfer rather than simple assembly work.
The legislation also broadens tax exemptions for certain diamond-related transactions and for storage of electronic components in customs-bonded warehouses, while offering relief for foreign institutional investors and the Bank for International Settlements on specified income from government securities. In a related policy context, BDO reported earlier this year that the government has been using the tax system to advance growth and self-reliance, while other amendments passed in 2026 have aimed to simplify compliance, reduce coercive recovery and make the regime more investment-friendly.
Another important change concerns foreign fund managers and digital infrastructure. The bill seeks to make it easier for overseas fund managers to relocate to India without automatically making their funds taxable because of the move, while retaining safeguards against round-tripping and other abusive structures. It also aims to simplify rules for foreign cloud companies using Indian data centres and allows data-centre operations on a leased basis, which could lower entry barriers and strengthen India’s ambitions as a regional hub for cloud and digital infrastructure.
For ordinary users, the most sensitive provision may be the proposal to allow banks and payment service providers to levy charges on UPI and other notified electronic payment systems. The current zero merchant discount rate framework for UPI and RuPay debit-card transactions has supported rapid adoption, but the bill opens the door to a future fee model if the government chooses to permit it. That could help make the ecosystem more financially sustainable, yet it also raises concerns for small merchants, micro-enterprises and low-income users if costs are passed through to them.
The bill also revisits the tax treatment of real estate investment trusts and infrastructure investment trusts, seeking to restore tax-free dividend income for unit holders while raising the surcharge on special purpose vehicles. Supporters say the changes could deepen long-term capital markets and help infrastructure developers raise funds more efficiently. Critics, however, point to limited parliamentary scrutiny, the fiscal cost of extended tax breaks and the risk that preferential treatment for large foreign players could leave domestic small and medium-sized businesses at a disadvantage.
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