The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026 amid continuous protests and sloganeering by Opposition members, preventing a detailed debate on the legislation. The Bill aims to promote domestic electronics manufacturing, attract foreign investment, and provide greater clarity to foreign companies operating through Indian manufacturing and data infrastructure networks.
The legislation was passed without discussion as Opposition members continued raising slogans over several issues, including allegations related to the theft of donations at the Ram temple in Ayodhya. Following the passage of the Bill, the House was adjourned for the day.
One of the key provisions of the Bill is the extension of income tax benefits for foreign companies that engage contract manufacturers in India for producing electronic goods. The exemption, which is currently available for such arrangements, has been extended until the financial year 2040-41 to encourage global companies to establish manufacturing partnerships in India. The government said the move is aimed at strengthening India's electronics manufacturing ecosystem and attracting more foreign capital into the sector. By offering long-term tax certainty, authorities expect global firms to increase their reliance on Indian manufacturing capabilities and expand local production networks.
The Bill also seeks to make it easier for foreign cloud service providers to use Indian data centres by providing what the government described as "process certainty". The measure is expected to support India's growing digital economy by encouraging more technology companies to utilise domestic infrastructure for data storage and computing services. Another important provision relates to amendments to the Payment and Settlement Systems Act, 2007.
The Bill proposes removing the direct linkage between the Payment and Settlement Systems Act and the Income Tax Act, while providing legal authority to the government to modify rules related to the zero-Merchant Discount Rate (MDR) framework for digital payments.
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Currently, banks and payment system providers are prohibited from charging users directly or indirectly for transactions made through platforms such as Unified Payments Interface (UPI) and RuPay debit cards. The proposed amendment would allow the Centre to decide, through official notification, which electronic payment modes or transactions must continue to remain free for users.
The government said the changes would provide greater flexibility in managing digital payment regulations while maintaining accessibility for consumers. The move comes as India continues to expand its digital payments ecosystem, with UPI emerging as one of the country's most widely used payment platforms.
The Taxation and Other Laws (Amendment) Bill, 2026, also replaces an ordinance issued on June 5 that provided income tax exemptions for interest income and capital gains earned by Foreign Portfolio Investors (FPIs) from investments in government securities. The replacement of the ordinance through legislation provides a longer-term legal framework for the tax measures. The Bill is part of the government's broader efforts to simplify tax provisions, improve investment conditions, and support sectors considered important for economic growth.
The electronics manufacturing push aligns with India's efforts to increase domestic production and reduce dependence on imported components. Despite the disruptions in Parliament, the government succeeded in securing the passage of the legislation in the Lok Sabha. The Bill will now move through the remaining parliamentary process before becoming law.
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