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Informist, Thursday, Aug. 6, 2026

 

--Lok Sabha passes Taxation and Other Laws (Amendment) bill

 

NEW DELHI – The Lok Sabha Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, without any debate or discussion, paving the way for a host of tax and regulatory changes aimed at boosting investment, manufacturing, and ease of doing business. The bill amends the Payment and Settlement Systems Act, 2007, overhauling the legal framework governing digital payment charges. It also replaces the ordinance promulgated in June, which introduced capital gains and withholding tax exemptions for foreign portfolio investors.

 

Finance Minister Nirmala Sitharaman had tabled the bill in the Lower House Tuesday. The amendments will allow the government to notify electronic payment modes on which banks and payment system providers cannot levy charges, replacing the existing framework linked to the Income-tax Act. The amendment also gives flexibility to the government to decide in future which digital payment modes could attract Merchant Discount Rate. The Merchant Discount Rate, popularly called MDR, is a fee a merchant pays to a bank for processing digital payments through credit cards, debit cards, or unified payment interfaces.

 

The bill also substantially relaxes the eligibility conditions for an eligible investment fund managed from India to qualify for tax exemption on its global income, a move that could help India's position as a global fund management hub. Under the bill, offshore funds will no longer be required to meet a minimum investor threshold of 25 members, a maximum 10% participation interest for a single investor, an aggregate participation cap of 50% for 10 or fewer investors, or a restriction on investing more than 25% of the corpus in a single entity. The bill removes restrictions on investments in associate entities and the requirement to maintain a minimum monthly average corpus of INR 1 billion.

 

The bill also extends tax benefits for foreign companies supplying capital goods to electronics manufacturers till the financial year 2040-41 (Apr-Mar). It also extends a tax exemption until FY41 for foreign companies storing components in customs-bonded warehouses for contract manufacturing in India. In addition, it proposes a tax exemption until FY41 for foreign diamond mining companies and related entities selling rough diamonds through notified special zones.

 

The bill will replace the ordinance promulgated on Jun. 5, which exempted from tax income from interest and capital gains earned by FPIs on investments in government securities. To attract foreign investment and shore up foreign exchange reserves, the government had exempted foreign investors from paying capital gains tax on investment in government bonds and withholding tax on interest earned from such investments.

 

The ordinance stated that any interest earned on government securities and any capital gains arising from the sale, exchange, or transfer of such securities would be exempt from tax. It was introduced to attract foreign capital to ease pressure on the rupee following the war in West Asia.

 

The amended law also exempts the Bank for International Settlements from capital gains tax. The Bank for International Settlements, owned by central banks, serves as a forum for monetary and financial cooperation and as a banker and asset manager for central banks and international organisations.

 

Before the ordinance, foreign institutional investors were liable to pay 12.5?pital gains tax on investments in government bonds held for more than 12 months while interest income attracted a 20% withholding tax. The ordinance was introduced amid pressure on India's external sector following the war in West Asia, which drove successive record lows and prompted aggressive intervention by the Reserve Bank of India to curb the currency's decline.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Himanshi Gupta

 

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