President gives assent to tax and UPI payment reforms — key takeaways
President Droupadi Murmu has given her assent to two significant pieces of legislation passed by Parliament on August 10: the Taxation and Other Laws (Amendment) Act, 2026, and an Act further amending the Payment and Settlement Systems Act, 2007. The assent was granted on August 17, according to a gazette notification from the Ministry of Law.
The taxation amendment is designed to attract foreign capital, promote domestic electronics manufacturing, and simplify operations for foreign cloud companies using Indian data centres by offering 'process certainty'. The measure replaces an ordinance issued on June 5 that had provided income tax exemptions to foreign portfolio investors (FPIs) on interest income and capital gains from investments in government securities (G-Secs).
Under the new law, fund managers will find it easier to relocate to India, as the conditions that funds must satisfy to ensure their global income is not taxed in India have been streamlined. To encourage domestic manufacturing, the act extends until 2040-41 the income tax exemption available to foreign companies that engage a contract manufacturer in India for producing electronic goods. The specified items include mobile phones, laptops, personal computers, tablets, servers, and their key parts and accessories.
Additionally, to support the component supply chain for electronics factories, the act provides a 15-year income tax exemption, valid until 2040-41, for foreign companies that store components in customs warehouses for subsequent supply to a contract manufacturer in India.
The second law amends the Payment and Settlement Systems Act, 2007, and gives legal backing to the government to modify the existing zero-merchant discount rate (MDR) framework on UPI and RuPay card transactions. The government can now specify, through notification, which electronic payment modes or transactions would be free from MDR charges. Currently, banks and payment-system providers cannot charge users for payments made through UPI and RuPay debit cards.
The UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), will now decide on the MDR structure. During the parliamentary debate, Finance Minister Nirmala Sitharaman assured that UPI payments will remain free for consumers, and any future MDR would apply only to certain categories of merchant transactions.
These changes are part of broader efforts to balance consumer interests with the sustainability of payment infrastructure. While UPI users are unlikely to face immediate charges, the new legal framework allows for differentiated pricing based on transaction type or merchant category in the future.
The amendments reflect the government's focus on improving the ease of doing business and attracting investment, while also providing clarity on digital payment costs. Experts suggest that the new tax provisions could enhance India's appeal as a manufacturing and investment destination, particularly in the electronics sector.
