Rajya Sabha to take up Taxation Laws Amendment Bill, Bankers' Books Evidence Bill tomorrow
The Rajya Sabha took up the Taxation and Other Laws (Amendment) Bill, 2026 and the Bankers' Books Evidence Bill, 2026 for consideration and passage, after both had already cleared the Lok Sabha.
The Taxation and Other Laws (Amendment) Bill amends the Payment and Settlement Systems Act, 2007, the Income-tax Act, 2025, and the Finance Act, 2026.
The Bill exempts foreign institutional investors (FIIs) and the Bank for International Settlements from income tax on interest and capital gains from specified government securities, replaces an interim ordinance, and gives the Central Government power to notify a Merchant Discount Rate (MDR) framework for electronic payment systems such as UPI and RuPay.
The Bankers' Books Evidence Bill separately modernises the 1891-era law on admissibility of bank records as court evidence for the digital-banking era.
Merchant Discount Rate (MDR) and Section 10A of the Payment and Settlement Systems Act, 2007
MDR is the fee a merchant pays to banks/payment providers for processing a digital transaction, usually shared between the issuing bank, acquiring bank, and network operator. Section 10A of the Payment and Settlement Systems Act, 2007 currently bars levying any charge on notified payment modes, which is why UPI and RuPay debit card transactions have carried zero MDR since January 2020 as part of the government's digital-payments push.
Key Details
- Zero-MDR for UPI/RuPay debit was mandated to widen digital-payment adoption, with the revenue shortfall to industry compensated through a separate government incentive scheme.
- The 2026 amendment to Section 10A does not itself impose any charge; it empowers the Central Government to notify, by regulation, which electronic payment systems may attract an MDR in future.
- The change shifts MDR policy from a rigid statutory prohibition to an executive-notification mechanism, giving the government flexibility to calibrate charges by payment mode over time.
This is the operative payments-law change inside the Bill the Rajya Sabha is passing — it does not itself levy any charge on UPI but creates the legal room for the government to do so selectively later.
Fully Accessible Route (FAR) and Tax Treatment of Foreign Investment in G-Secs
The Fully Accessible Route, introduced by the RBI in 2020, lets non-resident investors buy specified categories of Government Securities without the investment ceilings that otherwise apply to Foreign Portfolio Investors (FPIs) in the G-sec market. It underpinned India's inclusion in global bond indices such as JPMorgan's Emerging Market Bond Index.
Key Details
- Before the current exemption, FPI interest income from G-secs attracted a 20% withholding tax and long-term capital gains on listed bonds held over 12 months attracted 12.5% tax.
- The Taxation and Other Laws (Amendment) Bill, 2026 statutorily exempts FII and Bank for International Settlements interest and capital-gains income from specified Government Securities, with effect from April 1, 2026, replacing an earlier ordinance route.
- FPIs held roughly ₹3.75 trillion in government securities as of mid-2026, of which around ₹3.21 trillion was routed through FAR securities.
The Bill converts a temporary ordinance-based tax concession for foreign G-sec investors into a standing statutory exemption, aimed at sustaining foreign capital inflows into India's sovereign debt market.
Income-tax Act, 2025 as the Base Statute Being Amended
The Income-tax Act, 2025 is the current principal direct-tax legislation, having replaced the Income-tax Act, 1961. Any "Taxation Laws (Amendment)" bill from 2026 onward necessarily amends this new Act rather than the 1961 law.
Key Details
- The Income-tax Act, 2025 received Presidential assent on August 21, 2025 and came into force from April 1, 2026, cutting the statute from 819 sections to 536 and replacing the dual "Assessment Year/Previous Year" concept with a single "Tax Year."
- The 2026 Amendment Bill also formally replaces the interim Income-tax (Amendment) Ordinance, 2026 that had been used to bring some of these changes into immediate effect before Parliament could legislate.
This shows how a just-commenced tax code can require rapid follow-up legislation to incorporate investor-facing and sector-specific reliefs (FII exemptions, diamond-trading and electronics-manufacturing incentives) that were first rolled out by ordinance.
- Taxation and Other Laws (Amendment) Bill, 2026 amends: Payment and Settlement Systems Act, 2007; Income-tax Act, 2025; Finance Act, 2026.
- FII/BIS tax exemption on G-sec interest and capital gains applies from April 1, 2026.
- Pre-exemption rates: 20% withholding tax on FPI G-sec interest; 12.5% long-term capital gains tax on listed bonds held over 12 months.
- Zero-MDR mandate for UPI/RuPay debit transactions has applied since January 2020 under Section 10A of the PSS Act, 2007.
- Bankers' Books Evidence Act being replaced dates to 1891, modelled on the English Act of 1879.
- Both bills had already passed the Lok Sabha before being taken up in the Rajya Sabha.