Central Government is going to introduce a comprehensive package of regulatory and tax reforms that would boost domestic manufacturing, international capital flows and digital transaction frameworks. The legislation will be put into practice directly as a replacement for the Income-tax (Amendment) Ordinance, 2026 and will be a structural transformation in the financial, corporate and digital space.
Overhauling Digital Payment Frameworks and Merchant Discount Rates. A new legal structure to set electronic transaction charges must be developed. The government will have direct authority to inform which digital payment modes on which banks and payment system providers will not charge money. The government will replace legacy guidance on merchant discount rates (MDR) on digital transactions directly under the Income-tax Act with the new provisions which makes it easier for everyday digital transactions and more transparent for merchants and financial institutions.
Incentivizing Foreign Capital and Debt Market Participation. In order to generate long-term foreign capital flows and to support domestic debt market growth, the legislative framework has introduced targeted tax exemptions as part of the Income-tax (Amendment) Ordinance, 2026. Under the proposed laws, Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) are exempted from taxes on interest income and capital gains from investment in Indian Government Securities with the standard reporting requirement. This will reduce the tax costs for major institutions and enhance market liquidity.
Expanding support for Manufacturing and global supply chains. In order to make India a world manufacturing centre in the long term, the proposed reforms will provide key tax benefits for finance firms for the remainder of FY2040-41. For example, the foreign companies that supply essential capital goods, equipment and tooling to electronics manufacturers will benefit from tax exemptions in the long run. And a parallel tax exemption is also proposed for foreign companies that store components in customs-bonded warehouses for contract manufacturing operations in the country, for FY2040-41.
In a similar direction to special trade sectors, the legislative bill extends matching tax exemptions up to FY2040-41 to foreign diamond mining corporations and associated entities trading rough diamonds through officially notified special zones.
Corporate tax rationalization and administrative simplification. In addition to manufacturing and digital, the legislative package adds structural changes to the investment fund framework and broadens the statutory definition of certain electronic goods. To promote high-tech infrastructure development, the government will grant all data centres the right to run immediately using either owned or leased assets. The government will also keep the existing dividend tax exemption for business trust unit holders and raise the 25% surcharge on special purpose vehicles that choose to operate under the new corporate tax structure.
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