Tax Amendment Bill Reshapes India's Investment And Business Landscape
Boosts investment while simplifying tax rules.
The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing a series of tax-related changes aimed at making India a more attractive destination for foreign investment, manufacturing and global fund management. While the legislation focuses largely on improving the country's investment climate, it also includes provisions that could affect digital payments and small investors. Experts believe the amendments are designed to strengthen India's long-term economic competitiveness by encouraging global capital inflows and expanding business activity.
One of the most closely watched provisions relates to Unified Payments Interface (UPI) and RuPay transactions. At present, banks and payment service providers are barred from levying a Merchant Discount Rate (MDR) on these payments, a policy that has helped accelerate the widespread adoption of UPI since 2020. The new Bill removes the legal restriction preventing such charges in the future. However, it does not immediately introduce MDR. Any decision to impose the fee would require a separate government notification. According to media reports, if implemented, the charges are expected to apply only to merchants handling high-value transactions, while payments made to small vendors, including vegetable sellers and tea stalls, are likely to remain unaffected.
The legislation also introduces measures to encourage foreign investment by simplifying tax rules for overseas fund managers. Under the previous framework, foreign fund managers relocating to India faced the risk of their entire investment funds becoming taxable in the country. The amended provisions reduce this risk, making India a more attractive base for global fund management operations. Analysts believe the move could increase investment activity, generate employment opportunities in the financial sector and strengthen India's position as an international investment hub. Additionally, investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will continue to enjoy tax-free dividend benefits even if the underlying companies migrate to the new tax regime.
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The Bill further extends tax incentives for foreign companies supplying machinery to electronics manufacturing units in India for another 10 years. The government expects the extension to encourage more companies producing smartphones, laptops and tablets to establish manufacturing facilities in the country, supporting job creation and strengthening domestic supply chains. The amendments also provide tax exemptions for foreign diamond traders and cloud service companies operating Indian data centres, with the objective of attracting greater international business activity across key sectors of the economy.
Tax experts have described the amendments as a strategic shift towards long-term economic growth rather than short-term tax relief. Richa Sawhney, Partner-Tax at Grant Thornton Bharat, said the changes indicate a policy focus on attracting global capital through liberalised fund management rules, incentives for electronics manufacturing, support for data centres and diamond trading, and tax relief for foreign investors in government securities. According to Sawhney, the amendments collectively emphasise investment facilitation, stronger supply-chain resilience and greater long-term tax certainty, reinforcing the government's broader objective of positioning India as a preferred destination for global investors.
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