The Taxation and Other Laws (Amendment) Bill, 2026

Background

Passed by the Lok Sabha, the Taxation and Other Laws (Amendment) Bill, 2026 introduces targeted legislative amendments across taxation, capital markets, digital payments, and industrial supply chains to promote Ease of Doing Business and attract global foreign direct investment.

Significance

• Deepening Government Debt Markets: Total income tax exemption on interest and capital gains for FIIs and BIS in government securities makes Indian sovereign debt significantly more attractive globally.
• Financial Viability for Digital Payments: Introducing MDR on UPI payments exceeding ‣2,000 ensures long-term sustainability and technological infrastructure investment for banks and fintech providers while protecting retail users.
• Encouraging Offshore Asset Managers: Eliminating cumbersome structural restrictions (such as the ‣100 crore corpus limit and investor caps) facilitates onshoring global asset management operations to India.
• Strengthening High-Tech Supply Chains: Tax exemptions on machinery, tooling, and bonded component warehousing directly assist domestic contract manufacturers in producing servers, laptops, and smartphones.

Challenges and Criticisms

• Impact on Infrastructure Trust Returns: Increasing the surcharge on domestic SPVs of REITs and InvITs from 10% to 25% under concessional tax schemes may marginally compress investor yields.
• Merchant Resistance to UPI MDR: Reintroducing MDR for transactions above ‣2,000 may encounter friction from mid-to-large merchants accustomed to zero charges.

Way Forward

• Operational Clarity: Formulate simple procedural guidelines for foreign investment funds and bonded warehouse operations to eliminate legal ambiguity.
• Monitoring Digital Payment Adoption: Regularly evaluate the impact of UPI MDR on merchant adoption to ensure seamless payment ecosystem growth without dampening digital transaction volumes.

Introduction

The Taxation and Other Laws (Amendment) Bill, 2026 enacts vital reforms across India's taxation, digital payment, and capital market frameworks to boost foreign investment and ease of doing business.

Body

• Sovereign Capital Inflows: Full tax exemption for FIIs and BIS on **G-**Sec interest and capital gains, replacing historical tax rates (20% interest, 30% STCG, 12.5% LTCG).
• Digital Infrastructure Sustainability: Statutory introduction of MDR for UPI transactions over ‣2,000 while maintaining fee-free status for lower-value retail payments.
• Offshore Asset Management & Manufacturing: Removal of rigid caps (‣100 crore corpus, 25-member limit) for offshore funds managed from India; tax relief for electronics component warehousing and rough diamond trades.
• Key Concerns: Surcharge increase from 10% to 25% on REIT/InvIT SPVs and potential merchant resistance to UPI MDR.

Conclusion

By combining targeted fiscal incentives for strategic sectors with economic sustainability for digital payment systems, the Bill significantly strengthens India's global investment ecosystem.