The government plans to overhaul the legal framework governing charges on digital payments by amending the Payment and Settlement Systems Act, 2007, giving it greater flexibility to decide which payment modes remain exempt from charges such as merchant discount rate (MDR), according to people familiar with the matter.
The amendments propose replacing the current reference to “electronic payment modes specified under Section 269SU of the Income-tax Act, 1961”, with a provision allowing the Centre to notify one or more electronic payment modes that will remain exempt from charges.
The proposed amendment to the Payment and Settlement Systems Act is part of the Taxation and Other Laws (Amendment) Bill, 2026, which is expected to be introduced in the Lok Sabha this week. The Bill will replace the Income-tax (Amendment) Ordinance, 2026 and amend the Income-tax Act, 2025, as well as the Finance Act, 2026.
Union finance minister Nirmala Sitharaman is scheduled to seek Parliament’s approval on August 4 to introduce a Bill to further amend the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025, and the Finance Act, 2026, according to the revised List of Business for the Lok Sabha.
Sitharaman will also table an explanatory statement, outlining the reasons for the immediate legislation through the promulgation of the Income-tax (Amendment) Ordinance, 2026 (No. 2 of 2026).
The Bill also proposes extending, from FY31, the tax exemption for foreign companies supplying capital goods, equipment, and tooling to Indian contract manufacturers until FY41. The amendment is intended to support long-term investments in electronics manufacturing and strengthen India’s manufacturing ecosystem.
In another key change, the Bill carries forward tax relief announced through the Income-tax (Amendment) Ordinance, 2026 by exempting interest income and capital gains on government securities for foreign portfolio investors (FPIs). It also incorporates additional tax measures announced after the Ordinance was promulgated.
The Bill’s Statement of Objects and Reasons says the amendments are aimed at mitigating the impact of global economic disruptions, improving ease of doing business, providing tax certainty and supporting key sectors of the economy.
