President Droupadi Murmu has cleared key amendments to the Payment and Settlement Systems Act and Taxation laws, paving the way for potential MDR charges on UPI and RuPay transactions while boosting electronics manufacturing incentives.

  • President Murmu approved amendments to the Payment and Settlement Systems Act, 2007.
  • Legal framework established to levy Merchant Discount Rate (MDR) on UPI and RuPay transactions.
  • UPI payments for end-consumers will remain free of charge.
  • Tax incentives for electronics manufacturing extended until FY 2040-41.

In a landmark legislative move, President Droupadi Murmu has granted her assent to the 'Taxation and Other Laws (Amendment) Act, 2026' and the amendments to the 'Payment and Settlement Systems Act, 2007'. These bills, which were passed by Parliament on August 10, are set to redefine India's digital payment landscape and its attractiveness to foreign investors.

The amendment to the Payment and Settlement Systems Act provides the government with the legal authority to implement fees on UPI (Unified Payments Interface) and RuPay card transactions. Under this new framework, the government can issue notifications to specify which electronic payment modes or transactions will be exempt from the 'Merchant Discount Rate' (MDR).

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Why This Matters

BozokMedia analysis shows that this shift is crucial for the long-term sustainability of the digital payment ecosystem. While banks and payment providers currently cannot charge users for UPI or RuPay debit card transactions, the decision-making power regarding MDR will now rest with the UPI and Service Operations Committee, headed by NPCI. Finance Minister Nirmala Sitharaman emphasized during parliamentary discussions that UPI remains free for consumers, with charges potentially limited to specific categories of commercial transactions.

Transitioning toward a structured MDR model for commercial digital transactions is a vital step in sustaining the massive infrastructure required for India's digital economy.

Simultaneously, the 'Taxation and Other Laws (Amendment) Act' aims to bolster India's position as a global manufacturing hub. By streamlining tax laws, the government seeks to attract foreign capital and facilitate the use of Indian data centers by foreign cloud companies. A major highlight is the extension of income tax exemptions for foreign companies engaging in contract manufacturing of electronics in India until FY 2040-41.

Historical Background

This legislation replaces an ordinance issued on June 5, 2026, which had provided tax exemptions on interest income and capital gains for Foreign Portfolio Investors (FPIs) investing in government securities. The new act solidifies these benefits and extends manufacturing incentives to include mobile phones, laptops, personal computers, tablets, servers, and their essential components, ensuring long-term certainty for global tech giants.

Did You Know?: The extension of tax benefits until 2040 aims to align India's fiscal policy with the long-term production cycles of high-tech electronics.

Frequently Asked Questions

1. Will I be charged for using UPI for my daily shopping?
No. The government has clarified that UPI payments for individual users will continue to be free. Charges will only apply to certain business-to-business or specific commercial categories.

2. How does this benefit the electronics industry in India?
By extending tax holidays until 2040-41, India becomes a much more attractive destination for global companies to set up manufacturing units for mobile phones and computers.