President Droupadi Murmu has signed two major legislative changes to incentivize electronics manufacturing and update the digital payment framework. The new laws provide long-term tax exemptions for foreign electronics suppliers and grant the government power to refine Merchant Discount Rate (MDR) rules for digital transactions, while keeping consumer UPI payments free.
President Droupadi Murmu officially signed the Taxation and Other Laws (Amendment) Act, 2026, and an amendment to the Payment and Settlement Systems Act, 2007, into law on August 17, 2026. These legislative changes, which passed through Parliament on August 10, mark a significant shift in how India approaches foreign investment in manufacturing and the regulation of its massive digital payment ecosystem.
The new taxation act is primarily aimed at making India a more attractive destination for foreign capital and boosting domestic electronics manufacturing. It introduces a long-term income tax exemption until the 2040-41 tax year for foreign companies that supply capital goods or critical components to Indian electronics contract manufacturers. This policy is designed to provide greater certainty to global companies, encouraging them to deepen their supply chains within the country. Additionally, the law simplifies the process for foreign fund managers to relocate to India by relaxing conditions that previously triggered global income tax liabilities, a move intended to increase the flow of foreign investment into the financial sector.
Simultaneously, the amendment to the Payment and Settlement Systems Act brings a change to the country's digital payment framework. Previously, the system operated under a blanket zero-Merchant Discount Rate (MDR) mandate, meaning no fees were charged on UPI and RuPay transactions. The new legislation grants the government the legal authority to modify this structure through official notifications. This allows the government to designate specific payment methods or categories of transactions where MDR may apply, moving away from a one-size-fits-all approach.
The government has clarified that the core of the digital payment experience for the average person remains unchanged; UPI and RuPay transactions will continue to be free for consumers. The National Payments Corporation of India’s (NPCI) UPI and Services Steering Committee will be responsible for defining the details of any future MDR, which would target specific merchant categories rather than individual users.
For investors and businesses, these developments create distinct areas to track. In the electronics sector, companies involved in contract manufacturing and component supply will likely monitor how this long-term tax certainty influences foreign partnership and capital spending plans. In the payment and fintech space, the focus will shift to upcoming government notifications regarding which merchants might eventually face MDR charges. These updates will be critical for understanding potential revenue shifts within the payment processing industry, though the immediate impact remains subject to how the government decides to exercise its new regulatory powers.