Taxation bill to promote electronic manufacturing clears LS; allows provision for MDR on UPI transactions
The Lok Sabha on Thursday cleared the Taxation and Other Laws (Amendment) Bill without discussion as continued sloganeering by Opposition members over several issues disrupted proceedings. Following the passage of the legislation, which also amends the Payment and Settlement Systems Act, 2007, the House was adjourned for the day.The Taxation and Other Laws (Amendment) Bill is aimed at drawing more foreign capital into India, supporting domestic electronics manufacturing and providing “process certainty” to make it easier for overseas cloud companies to use data centres located in the country.
About Taxation and other Laws (Amendment) Bill
Among its provisions, the legislation seeks to delink the Payment and Settlement Systems Act from the Income Tax Act and provide a legal framework under which the government can alter the existing zero-MDR regime for UPI and RuPay card payments.Currently, banks and payment system providers are prohibited from levying charges, either directly or indirectly, on users making payments through UPI and RuPay debit cards.Also Read | ‘Someone has to pay the cost’: RBI governor on MDR proposal for UPI transactions above Rs 2,000Under the proposed changes, the Central government would be empowered to specify, through a notification, the electronic payment modes or transactions that must continue to remain free of charges.The Taxation and Other Laws (Amendment) Bill, 2026, will replace the ordinance issued on June 5 that granted income-tax exemption on interest income and capital gains earned by foreign portfolio investors from investments in government securities.The legislation also seeks to facilitate the relocation of fund managers to India by reducing the number of conditions that such funds must meet to prevent their global income from becoming taxable in the country.In another measure intended to provide policy certainty and encourage domestic manufacturing, the Bill extends until 2040-41 the existing income-tax exemption for foreign companies that engage contract manufacturers in India to produce electronic goods.The Bill identifies a range of specified electronic products, including mobile phones, laptops, personal computers, tablets, servers, and their essential components and accessories.To strengthen the electronics manufacturing supply chain, the legislation proposes a 15-year income tax exemption, extending until FY2040-41, for foreign companies that store electronic components in customs-bonded warehouses before supplying them to contract manufacturers in India.Also Read | India to get its first plastic notes next year: RBI governor shares timeline, explains benefitsThe Bill also seeks to simplify the regulatory framework for foreign cloud service providers by removing the existing approval and notification requirements for using Indian data centres. In addition, it allows these data centres to operate on leased infrastructure instead of requiring direct ownership.According to Finance Ministry sources, the various measures proposed in the legislation are intended to achieve a common objective – to make India a more predictable and attractive destination for global investment, manufacturing and business operations.
