The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing tax incentives for foreign electronics manufacturers, data centers, and diamond traders. The legislation also provides the government with new authority to regulate charges on digital payment modes like UPI and RuPay. Investors should watch for the long-term impact on foreign investment inflows and future policy decisions regarding digital payment fees.
On August 6, 2026, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026. This legislation aims to strengthen India's appeal as a manufacturing and financial hub by offering targeted tax incentives to foreign investors. The bill, which replaces an ordinance issued in June 2026, introduces changes across multiple high-growth sectors, including electronics, data centers, and the diamond trade.
Incentives for Electronics and Data Infrastructure
A major focus of the legislation is to support the domestic electronics ecosystem. Foreign firms that store electronic components in bonded warehouses for supply to Indian contract manufacturers are now eligible for tax exemptions until March 31, 2041. This provides a clear, long-term timeline for businesses planning to set up supply chain hubs in India.
Similarly, the bill eases the entry for foreign data center service providers. By removing certain mandatory government notification requirements and allowing the inclusion of leased facilities, the government intends to lower the barriers for global digital infrastructure firms. These changes are expected to support the growing demand for cloud and storage infrastructure in the country.
Tax Relief for Foreign Investors and Diamond Trade
The bill offers specific tax relief to attract foreign capital into financial and trading segments. Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) will receive income tax exemptions on interest and capital gains earned from government securities. These changes are effective from April 1, 2026.
Additionally, a 15-year tax holiday has been introduced for foreign companies operating in the rough diamond trade within notified special zones. This is designed to cement India’s position as a global processing hub for diamonds, encouraging mining companies and traders to conduct auctions and sales within the country.
Regulation of Digital Payment Charges
Beyond tax changes, the bill amends the Payment and Settlement Systems Act, 2007. This allows the Central government to notify and regulate charges, often referred to as the Merchant Discount Rate, on specific electronic payment modes like UPI and RuPay. While the industry has operated on a zero-charge framework for years, this amendment provides the legal authority to introduce charges in the future.
For investors, this marks a potential shift in the economics of the digital payments sector. While no immediate charges have been implemented, the framework is now in place for the government to act based on market needs and sustainability requirements.
Risks and Implementation
The bill was passed during Opposition protests, which could lead to questions regarding policy stability. Additionally, while tax holidays and exemptions are designed to drive investment, they also carry a fiscal cost. The government will need to balance these revenue incentives against long-term deficit targets. Investors should monitor how the new payment regulations are implemented and whether they affect the adoption rates of digital payment platforms.