UPI, tax breaks and electronics: What's inside the new Tax Amendment Bill?

The Centre on Tuesday introduced the Taxation and Other Laws (Amendment) Bill, 2026 in Parliament, proposing key changes to India's digital payments framework and tax policies. The Bill replaces the Income-tax (Amendment) Ordinance issued in June and includes provisions that could pave the way for the return of Merchant Discount Rate (MDR) on certain UPI transactions, while also extending tax incentives for the electronics manufacturing sector.

Govt proposes changes to zero-MDR policy

One of the most significant provisions relates to digital payments. The Bill proposes amendments to the Payment and Settlement Systems Act, 2007, removing the existing statutory ban on Merchant Discount Rate (MDR) for UPI and RuPay debit card transactions.

Instead of a blanket prohibition, the government will have the authority to notify specific digital payment modes that will continue to enjoy the zero-MDR benefit. The proposed change gives the Centre greater flexibility in deciding which payment systems remain exempt from merchant charges.

Tax relief extended for electronics sector

The Bill also seeks to strengthen India's electronics manufacturing ecosystem through long-term tax incentives.

Foreign suppliers providing capital goods to domestic electronics contract manufacturers will continue to receive tax benefits until FY2040-41. The proposed framework covers "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 be eligible for the extended tax relief, offering greater policy certainty to companies investing in India's manufacturing sector.

Focus on data centres and business trusts

The proposed legislation also introduces changes aimed at supporting digital infrastructure and investment vehicles.

The tax benefit framework has been expanded to include leased data centres operated by Indian companies, making it easier for foreign entities procuring such services.

The Bill also retains dividend tax exemptions for unit holders of business trusts, including Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), subject to specified conditions.

In addition, the corporate surcharge for Special Purpose Vehicles (SPVs) under the new tax regime has been fixed at 25 per cent, while other domestic companies will continue to be subject to the existing 10 per cent surcharge.

The proposed amendments now await parliamentary consideration before becoming law.