The Bill seeks to repeal and replace the Income-tax (Amendment) Ordinance, 2026 issued on June 5, 2026.

• The bill amends Income-tax Act, 2025, Finance Act, 2026 and Payment and Settlement Systems Act, 2007.

Key amendments of the Bill

• Exemption in income tax:  Foreign institutional investors (FIIs) and Bank for International Settlements (BIS) from paying income tax on Interest earned on investments in government securities and Capital gains.
  • Previously, under the Income-tax Act, 2025  interest income was taxed at 20%, short-term capital gains at 30%, and long-term capital gains at 12.5%.
• Tax exemptions: Amends the Income-tax Act to give to certain foreign companies engaged in businesses of diamonds and electronics manufacturing until 2041.
• Surcharge rate hike: It raises the surcharge rate to 25% for a special purpose vehicle of business trusts (e.g. REITs and InvITs), which pool money from investors to buy and manage assets.
  • The Finance Act, 2026 levies a surcharge of 10% on income-tax.
• Digital Payments: The new Bill proposes removing restriction on charge on payment made by electronic modes such as Unified Payments Interface (UPI); effectively scrapping the zero Merchant Discount Rates (MDR).
  • Introduced in 2020, Zero-MDR provision bars banks and payment system providers (PSPs) from imposing charges on digital payments.
    • MDR refers to the rate merchants are charged for accepting Debit Card and Credit Card payments and funds paid via card or digital payments like net banking and Digital Wallets.
• Data centres: The Bill removes the conditions that a foreign company must be notified by the central government, and that the data centre must be set up under an approved scheme.