Taxation and Other Laws (Amendment) Bill 2026: Key Provisions
Why in the news
Lok Sabha passed a wide-ranging tax Bill meant to draw foreign investment, back Make in India and modernise payments rules. Its most debated feature is the power to allow charges on UPI.
Key facts
- Laws touched: the new Income-tax Act (2025), the 2026 Finance Act and the Payment and Settlement Systems Act (2007); it takes the place of an Ordinance.
- Electronics: tax benefits for foreign companies supplying machinery or using Indian factories for contract manufacturing; products include mobiles, laptops, servers and wearables.
- Diamonds and electronics: exemptions on income from selling rough diamonds and storing components in customs-bonded warehouses.
- FIIs and BIS: no income tax on some interest and capital gains from government securities.
- Fund managers: easier relocation to India without making overseas funds taxable, with safeguards against round-tripping.
- Data centres: fewer approvals for foreign cloud providers, and Indian data centres may operate from leased premises.
- REITs and InvITs: tax-free dividend income restored for investors.
- UPI: the Centre may let banks and payment providers levy fees on UPI and other notified digital modes, which are barred today.
| Measure | Earlier position | Bill’s change |
|---|---|---|
| Electronics contract-manufacturing tax holiday | Five years | Extended 10 years, to 2040-41 |
| SPV surcharge (business trusts) | 10% | 25% proposed |
| UPI charges | Prohibited | Government may permit |
| Dividend income from REITs/InvITs | Taxed | Tax-free again |
Significance
- Draws foreign money and supports domestic electronics production.
- Could make India a hub for data storage and cloud services.
- Attracts global fund managers to shift operations.
- Encourages investment in real estate and infrastructure through REITs and InvITs.
- Reduces approvals, making business easier.
Concepts
- REIT: pools money into income-earning property such as offices, malls and hotels, much like a mutual fund for real estate.
- InvIT: similar, but invests in highways, power plants and transmission lines; regulated by SEBI under the InvIT Regulations, 2014.
- MDR: fee a merchant pays its bank or payment provider on a digital payment, usually a small percentage of the value; zero for UPI and RuPay debit cards since 2020.
- Round-tripping: sending Indian money abroad and bringing the same funds back disguised as FDI or FPI.
Concerns
- Passed amid disruptions with little debate, raising scrutiny questions.
- Ending zero-MDR may hurt small shopkeepers and low-income users; supporters say the present model is unsustainable.
- Long-term exemptions may cut revenue and strain fiscal discipline.
- Round-tripping risk despite safeguards.
- Large foreign firms may gain an edge over domestic MSMEs.
Way forward
- Link long-term tax benefits to jobs, exports and technology, and review them regularly.
- Pair data-centre incentives with strong data-protection and cybersecurity rules under the DPDP Act, 2023.
- Back incentives with stronger PLI schemes and R&D funding, especially for MSMEs.
- SEBI and CBDT should use AI-based monitoring, and GAAR should be applied strictly.
Exam angle
- Zero MDR on UPI since 2020; the Bill enables fees if the Centre notifies them.
- InvIT regulator: SEBI (2014 Regulations).
- Related terms: round-tripping, GAAR, FII, SPV.