India’s New Tax Rules Prioritize Foreign Capital Over UPI Merchants

The federal government’s framing was aimed toward simplifying compliance, attracting capital, and offering “tax certainty” at a second of what the Invoice itself describes as evolving geopolitical disruption to international commerce. Two provisions buried inside this omnibus laws deserve extra scrutiny than they received in Parliament — one as a result of it touches almost each Indian with a smartphone, the opposite as a result of it quietly reshapes how India competes for international capital. Learn collectively, they inform a narrative much less about simplification and extra about who the tax code is optimised for now.

The UPI modification

Part 10A of the Cost and Settlement Techniques Act, 2007 has, since January 2020, saved the Service provider Low cost Fee (MDR) at zero for UPI and RuPay debit transactions. This was the authorized firewall that made India’s digital funds free for retailers. The 2026 Invoice amends this part to let the central authorities notify, by govt order, which digital fee modes keep free, and which can appeal to costs in future. Parliament successfully handed itself an exit ramp from a five-year-old dedication, with out spelling out the place that ramp leads.

UPI processed 24,161.69 crore transactions price Rs 314.23 lakh crore in FY26 (roughly $3.56 trillion), up from Rs 84.16 lakh crore simply 4 years earlier. That’s not a distinct segment fintech product. It’s the plumbing of India’s retail economic system, with 55.49 crore customers onboarded as of June 2026. The zero-MDR regime was by no means free for the exchequer both. The federal government has run a parallel incentive scheme reimbursing banks and NPCI, with outlays that climbed from Rs 1,389 crore in 2021-22 to Rs 3,631 crore in 2023-24. The Funds Council of India has argued for years that this subsidy mannequin is unsustainable and has formally petitioned the federal government to rethink zero MDR, noting that of roughly 6 crore digital-accepting retailers, about 90 per cent are sufficiently small that any new cost would land disproportionately on them except rigorously tiered.

Sitharaman has pushed again on Congress chief Jairam Ramesh’s cost that this opens the door to charging unusual customers, clarifying that MDR by definition applies to retailers, not prospects, and that any precise charge will probably be determined later by an NPCI-led steering committee, not by this Invoice. That’s technically correct, however it sidesteps the economics. Service provider prices are hardly ever absorbed silently; they have an inclination to floor as value changes, minimum-transaction thresholds, or a quiet desire for money, significantly amongst small retailers with skinny margins. A coverage shift of this magnitude, decoupling a five-year zero-cost assure from statute and handing the rate-setting energy to notification, arguably deserved the parliamentary debate it by no means received — particularly given Ramesh’s separate allegation, nonetheless unverified, that the change could also be related to US strain over India’s zero-fee funds ecosystem undercutting American card networks.

Courting capital

The Invoice’s second main thrust is squarely aimed toward international capital and manufacturing. It cuts the eligibility circumstances for fund managers relocating to India — a long-standing GIFT Metropolis ambition — from 13 down to only 5. It’s a real compliance simplification that fund-management lobbies have looked for years. It additionally strips away notification necessities for international corporations utilizing Indian-owned information centres and extends exemptions to international electronics and diamond-trade corporations.

Essentially the most hanging measure is a 15-year tax exemption, working to 2041, for international corporations storing digital elements in customs-bonded warehouses earlier than supplying Indian contract producers. This lengthy horizon is a deliberate wager on electronics manufacturing as India’s subsequent export engine. Capital-intensive provide chains require coverage stability measured in many years moderately than finances cycles; such long-term dedication is crucial to compete credibly towards Vietnam or Mexico for relocating factories.

The asymmetry is the analytical crux. International fund managers and electronics producers get a 15-year runway and a lighter compliance load. Home retailers — the overwhelming majority of them small, informal-economy operators newly formalised by UPI itself — get a provision that opens the door to new costs with no comparable long-term safety or phase-in dedication written into the statute. Each strikes could also be individually defensible on their very own financial logic; funding certainty for capital-intensive manufacturing is just not the identical drawback as payments-ecosystem sustainability. However a single “consolidating” Invoice quietly pursuing each, handed with out debate, invitations the query of whether or not home stakeholders received the identical listening to as worldwide ones.

None of this argues towards the Invoice’s core financial logic. However course of is just not a footnote to substance. A provision restructuring the fee habits of over 55 crore customers deserves a broadcast charge framework, a transition timeline, and an express small-merchant carve-out earlier than Parliament votes — not after, through a steering committee insulated from legislative scrutiny. The extra helpful debate is just not whether or not India wants tax certainty for capital, however whether or not it could possibly lengthen the identical certainty to the folks already inside its funds system.

Mohan is dean and professor of Economics, O P Jindal World College (JGU). Subramoniam is with the Centre for New Economics Research (CNES), JGU