The Union government has introduced the Taxation and Other Laws (Amendment) Bill, 2026, in Parliament, proposing significant changes to India's digital payments and corporate tax framework. The legislation replaces the Income-tax (Amendment) Ordinance issued in June 2026 and includes provisions that could pave the way for the return of Merchant Discount Rate (MDR) charges on certain Unified Payments Interface (UPI) transactions while extending tax incentives for the electronics manufacturing sector.

One of the most notable proposals in the Bill is the removal of the statutory "zero-MDR" provision for UPI and RuPay debit card transactions under the Payment and Settlement Systems Act, 2007. At present, banks and payment service providers are prohibited from charging merchants an MDR on these payment modes. If the Bill is enacted in its current form, the blanket ban will be replaced with a framework that allows the Centre to notify specific digital payment modes that will continue to enjoy zero-MDR status. This would give the government greater flexibility to determine where merchant charges may or may not apply, with the aim of creating a sustainable revenue model for the digital payments ecosystem.

The proposed legislation also focuses on strengthening India's electronics manufacturing industry through long-term tax incentives. It extends tax holidays for foreign suppliers of capital goods to domestic electronics contract manufacturers until the financial year 2040-41. The incentives will apply to specified electronic goods, including mobile phones, laptops, tablets, servers, wearables, and related components. Foreign electronics companies using customs-bonded warehouses for storing components will also remain eligible for tax relief until FY2040-41, a move intended to encourage investment and reinforce India's position as a global manufacturing hub.

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In addition, the Bill proposes several measures to support digital infrastructure and investment vehicles. The tax benefit framework has been expanded to include leased data centres operated by Indian companies, simplifying tax provisions for foreign entities availing such services. The government has also retained dividend tax exemptions for unit holders of business trusts, including Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), subject to specified conditions. These measures are expected to provide greater certainty for investors and infrastructure developers.

The legislation further revises aspects of the corporate tax regime by fixing the surcharge for Special Purpose Vehicles (SPVs) at 25% under the new framework, while other domestic companies will continue to be subject to the standard 10% surcharge. The Bill will now undergo parliamentary scrutiny before it can become law. If passed, its provisions are expected to reshape India's digital payments landscape and provide long-term policy support for electronics manufacturing, digital infrastructure, and investment-oriented business structures.

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