Govt Set To Introduce Tax And Digital Payments System Reforms Soon
Centre plans major tax and payment system reforms.
The Centre is set to introduce a broad set of tax and regulatory reforms aimed at encouraging investment, strengthening manufacturing and expanding digital payments in India. Finance Minister Nirmala Sitharaman is likely to move the Tax Amendment Bill, 2026, along with additional tax-related measures in the Lok Sabha early this week. The proposed legislation will also replace the Income-tax (Amendment) Ordinance, 2026.
One of the key proposals focuses on reforming the legal framework governing charges on digital payments. Under the proposed changes, the government will have the authority to notify electronic payment methods on which banks and payment system providers cannot impose charges. The move is expected to provide greater clarity on merchant discount rates associated with digital transactions and support wider adoption of cashless payment systems.
The proposed amendments also include tax benefits aimed at attracting foreign investment. Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) may receive exemptions from tax on interest income and capital gains earned through investments in government securities, subject to specified conditions. The government is also planning measures to support the electronics manufacturing sector by extending tax benefits for foreign companies supplying capital goods to electronics manufacturers until the financial year 2040-41.
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Further incentives have been proposed for foreign companies engaged in contract manufacturing and diamond trading activities. Companies storing components in customs bonded warehouses for contract manufacturing in India may receive tax exemptions until FY2040-41. Similar benefits are proposed for foreign diamond mining companies and related entities involved in selling rough diamonds through notified special zones.
The reform package also includes measures to simplify the eligible investment fund framework and expand the definition of specified electronic goods. The proposals seek to allow certain data centres to operate on owned or leased infrastructure while continuing dividend tax exemptions for business trust unit holders in specific cases. Additionally, special purpose vehicles opting for the new tax regime may face a higher 25 per cent surcharge.
The proposed changes come as the government seeks to create a more investment-friendly tax environment while improving digital payment infrastructure and strengthening domestic manufacturing. If approved, the amendments are expected to bring changes across multiple sectors, including finance, technology, electronics and international investment.
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