Parliament Passes Taxation Laws Amendment Bill, Paving Way For Possible UPI Charges

Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, which, among other tax changes, amends the legal framework governing electronic payments in a manner that could pave the way for charges on UPI transactions in the future.The Rajya Sabha cleared the Bill on Tuesday, after which the legislation was returned to the Lok Sabha, completing the parliamentary process. The Bill had earlier been passed by the Lok Sabha.The legislation does not itself impose any charge on UPI transactions. However, it removes the existing statutory reference that links the no-charge protection for electronic payments to modes prescribed under the Income-tax Act, 1961 and replaces it with a provision empowering the Central Government to specify, by notification, the electronic modes of payment to which the no-charge regime will apply.This means that the government will have greater flexibility to determine which electronic payment modes will remain protected from charges, potentially opening the door for a future Merchant Discount Rate (MDR) framework for UPI.What has changed for UPI?Section 10A of the Payment and Settlement Systems Act, 2007 currently provides that no bank or system provider can impose, directly or indirectly, any charge on a person making or receiving a payment through electronic modes prescribed under Section 269SU of the Income-tax Act, 1961.The amendment replaces the reference to Section 269SU with the words:"one or more electronic modes of payment as the Central Government may, by notification, specify."Thus, instead of the statute itself referring to a particular set of prescribed electronic modes, the Centre will be able to determine the protected modes through a notification.The change has triggered concerns that it could eventually enable charges to be levied on UPI transactions, particularly through an MDR mechanism under which merchants, rather than consumers, bear the transaction cost.Finance Minister Nirmala Sitharaman, while responding to concerns in the Rajya Sabha, said that the amendment should not be interpreted as imposing a charge or tax on UPI transactions.She assured that UPI transactions would remain free for consumers. She has also said that no MDR framework has yet been finalised.Other changesThe Bill amends the Income-tax Act, 2025 to rationalise conditions applicable to eligible investment funds and their fund managers, with the stated objective of promoting fund management activity in India and providing tax certainty.It also introduces tax exemptions for interest and capital gains arising from Government securities in the hands of specified Foreign Institutional Investors and the Bank for International Settlements.Another provision provides a 15-year tax exemption for income from the sale of rough diamonds by specified foreign companies, including diamond miners, sightholders, brokers, aggregators and tender and auction entities, subject to prescribed conditions.The legislation further provides tax relief for foreign companies storing components in custom bonded warehouses for supply to Indian contract manufacturers producing specified electronic goods. The exemption is available up to the tax year ending March 31, 2041.The Bill also extends certain existing tax incentives for electronic manufacturing and eases conditions relating to specified data centres.The legislation also repeals the Income-tax (Amendment) Ordinance, 2026, which was promulgated on June 5 when Parliament was not in session. Actions already taken under the Ordinance will be treated as having been taken under the corresponding provisions of the new law.The government's Statement of Objects and Reasons says the amendments are intended to address the impact of geopolitical developments, disruptions in international trade and supply chains, and the resulting global economic uncertainty.The Bill will now go for Presidential assent. Click here to read the Bill

Parliament Passes Taxation Laws Amendment Bill, Paving Way For Possible UPI Charges

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Parliament Passes Taxation Laws Amendment Bill, Paving Way For Possible UPI Charges

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