Taxation and Other Laws Amendment Bill 2026: Key Changes Explained

The Taxation and Other Laws Amendment Bill 2026 was introduced by the Centre on Tuesday in the Lok Sabha, bringing forth notable amendments to the Payment and Settlement Systems Act 2007. This initiative provides the government with the authority to determine which electronic payment methods will continue to be exempt from merchant charges, including the merchant discount rate (MDR).

This proposed adjustment removes the current references to the Income Tax Act regarding electronic payment modes and grants the Central Government the power to announce specific electronic payment systems that banks and payment service providers cannot impose charges on. Importantly, the Bill does not implement MDR on UPI or any alternative digital payment modes. Rather, it enables the government to decide through forthcoming notifications which payment methods will remain charge-free and which might incur fees.

Potential Impact of the Amendment

This measure is poised to reignite conversations concerning the zero MDR approach, a persistent request from banks and payment companies. These entities argue that the existing framework complicates the recovery of payment processing expenses.

Background Context

The announcement follows a report from Startup Superb over a year ago, which indicated that the Finance Ministry and the Reserve Bank of India were contemplating the imposition of MDR on UPI transactions for larger merchants. At that time, the Finance Ministry refuted these claims, stating no such proposals were being considered.

According to ANI, the changes pertaining to payments are part of the Taxation and Other Laws Amendment Bill 2026. This Bill also seeks to amend the Income Tax Act 2025 and the Finance Act 2026, while replacing the Income Tax Amendment Ordinance 2026.

Additional Provisions in the Bill

Moreover, the Bill aims to extend tax incentives for electronics manufacturing until March 31, 2041, simplifying compliance regulations for offshore investment funds, and offering tax exemptions for specific foreign investors as well as those involved in the diamond trade.