New Tax Bill Proposes Fee-Free Digital Payment Modes, Easier Rules For Offshore Funds

The Centre government has introduced the Taxation and Other Laws (Amendment) Bill, 2026 in Lok Sabha, bringing a set of changes that could affect digital payments, offshore investment funds and select industries.

The Bill seeks to amend the Income-tax Act, 2025, the Finance Act, 2026 and the Payment and Settlement Systems Act, 2007. It will replace the Income-tax (Amendment) Ordinance, 2026, while protecting actions already taken under the Ordinance.

The government has said the proposals are intended to address disruptions in global trade and supply chains, attract overseas capital and provide greater certainty to investors and businesses.

No Charges On Notified Digital Payment Modes

One proposal may directly affect users of digital payments. The Bill empowers the central government to notify electronic payment modes on which banks and payment system providers cannot levy charges.

This does not immediately make every digital transaction free. The restriction will apply only to payment modes specifically notified by the government after the legislation is enacted.

The Bill also removes references to the income-tax law from certain provisions of the Payment and Settlement Systems Act dealing with prescribed electronic payment modes.

Offshore Fund Rules To Be Eased

The proposed legislation significantly relaxes the conditions that offshore investment funds must meet to avoid being treated as having a taxable business connection in India merely because their fund managers operate from the country.

Several requirements relating to the number and concentration of investors, diversification, investment in associated entities and the minimum corpus are proposed to be removed. Core safeguards will remain.

The change is intended to make India more attractive as a base for managing overseas funds and reduce disputes over whether fund-management activity creates a tax liability in the country.

The Bill also proposes tax exemption for interest and capital gains earned by eligible foreign institutional investors and the Bank for International Settlements from government securities, subject to reporting conditions.

FAQs

1. Will all digital payment transactions become free under the Bill?

No. Charges will be prohibited only on electronic payment modes specifically notified by the central government after the Bill becomes law.

2. How will the Bill benefit offshore investment funds?

It proposes removing several conditions related to investor concentration, diversification and minimum corpus, making it easier for eligible offshore funds to be managed from India.

3. Which industries may receive extended tax relief?

Eligible foreign companies supporting electronics manufacturing and rough diamond trading may receive tax exemptions until March 31, 2041, subject to the prescribed conditions.