Parliament on Monday passed the Taxation and Other Laws (Amendment) Bill, 2026, with Finance Minister Nirmala Sitharaman clarifying that the legislation does not impose any tax or transaction charge on UPI.
The Bill, passed by the Lok Sabha last week, was returned by the Rajya Sabha through a voice vote after a brief discussion and the Finance Minister’s reply.
Sitharaman said UPI has remained free for consumers since its launch and will continue to be so.
“Will consumer pay any UPI charge – No,” she said, adding that every Indian would continue to use the instant digital payment system without paying a transaction charge.
What does the bill say about UPI?
The legislation changes the legal framework governing Merchant Discount Rate (MDR) on UPI, RuPay and other electronic payments.
At present, banks and payment system providers cannot directly or indirectly charge users for payments made through UPI and RuPay debit cards.
The Bill removes the linkage between the Payment and Settlement Systems Act and the Income Tax Act. It gives the central government legal backing to decide through notification which electronic payment modes or transactions must remain free.
The government has clarified that the change does not immediately introduce a UPI fee. Users and person-to-person transactions will remain free, while a future notification could potentially allow a nominal MDR on certain categories of merchant transactions.
Bill seeks to attract foreign investment
The Taxation and Other Laws (Amendment) Bill, 2026, replaces the June 5 ordinance that provided income-tax exemption on interest income and capital gains earned by Foreign Portfolio Investors from investments in government securities.
It also seeks to make it easier for fund managers to relocate to India by reducing the conditions that funds need to meet to ensure their global income is not taxed in India.
The government has said the Bill aims to attract more foreign capital, promote domestic electronics manufacturing and make it easier for foreign cloud companies to use Indian data centres by providing “process certainty”.
Electronics manufacturing gets tax extension
The Bill extends until tax year 2040-41 an exemption for foreign companies providing capital goods, equipment or tooling to Indian contract manufacturers.
The specified goods include mobile phones, laptops, tablets and all-in-one PCs, servers and ultra-small form-factor computers, as well as sub-assemblies, hearables, wearables and related accessories.
What does it provide for foreign investors?
Foreign Institutional Investors and the Bank for International Settlements will receive income-tax exemptions on interest earned from government securities and capital gains from the sale, exchange or transfer of those securities.
The exemption applies to income arising on or after April 1, 2026, subject to prescribed reporting requirements.
The Bill also eases tax-exemption conditions for foreign companies procuring data-centre services from India. It removes the requirement that the foreign company and data centre be specifically notified and allows a data centre operated by an Indian company on a leased basis to qualify.
Tax relief for diamonds and investment funds
The legislation proposes tax exemptions, up to tax year 2040-41, for foreign diamond-mining companies, sightholders, brokers and related entities selling rough diamonds in notified special zones such as Mumbai and Surat.
It also proposes exemptions for foreign companies storing components in customs-bonded warehouses for Indian contract manufacturers of specified electronic goods.
For foreign investment funds whose managers operate from India, the Bill relaxes several conditions and reduces the compliance burden to attract fund-management activity.
For business trusts such as REITs and InvITs, dividend income distributed to unit holders will remain exempt even where the trust’s special-purpose vehicle opts for the new tax regime. In compensation, the surcharge on such SPVs will rise from 10% to 25%.
What is the significance?
The government presents the Bill as a measure to attract foreign capital, promote electronics and data-centre investment, support the diamond industry and provide tax certainty.
Its most politically sensitive provision is the UPI change. While the Bill creates the legal possibility of future merchant-side charges, it does not itself impose charges on ordinary users.