Lok Sabha clears ToLA Bill, opening scope for MDR on UPI and extending key tax exemptions

The Taxation and Other Laws (Amendment) Bill creates scope for merchant discount rates on UPI while easing conditions for foreign funds and extending tax exemptions for electronics tooling, data centres and diamond traders in Mumbai and Surat.

— Source publishedThu, 6 Aug, 2026, 14:44 IST·First seen Thu, 6 Aug, 2026, 14:49 IST·Source BL · Consumer & Economy

What happened

Unified Payments Interface (UPI) · Lok Sabha passed the ToLA Bill, enabling a potential MDR on UPI while easing tax rules for foreign funds, data centres and

Key facts

  • MDR could be imposed on UPI
  • EIF tax-exemption conditions reduced to 5 from 13
  • Machinery and tooling tax exemption extended by 10 years
  • Total exemption period: 15 years
  • Exemption runs through FY 2040-41
  • Rough-diamond display regime has operated since 2016
  • Foreign diamond-trade income exemption: 15 years

Why this matters

Strategic buyers should reassess fintech, payments-infrastructure and tax-advantaged electronics or data-centre targets as UPI monetisation and long-duration incentives reshape asset values.

What to watch

  • Final statutory language and subsequent notifications defining whether MDR is enabled, mandated, capped or limited by merchant size, transaction value or use case.
  • RBI, NPCI and Ministry of Finance guidance on UPI pricing, interchange, payment-service-provider compensation and continuation of UPI incentive subsidies.
  • Merchant association, consumer and political reaction, especially ahead of major state or national electoral periods.
  • Payment-aggregator pricing changes, bank acquiring-fee revisions and any new UPI credit or commercial-payment monetisation rules.
  • Changes in UPI transaction growth, low-ticket transaction share, merchant acceptance density and cash usage after policy clarification.
  • Operational rules and sunset dates for electronics tooling, data-centre and diamond-trade tax exemptions, including geographic and investment thresholds.
  • Model UPI acceptance costs under zero-MDR, targeted-MDR and broad-MDR cases by ticket size, merchant category and payment mix.
  • Review merchant contracts and checkout architecture to ensure routing, payment-method steering and surcharge rules can be adapted quickly if permitted.
  • Prioritise negotiations with payment aggregators and banks on blended pricing, settlement terms, fraud tooling and value-added-service bundles.
  • For small-seller ecosystems, assess whether low-ticket UPI orders would require basket-size nudges, loyalty incentives or selective cash-on-delivery alternatives.
  • Track tax-exemption eligibility for electronics tooling, data-centre investment and relevant supply-chain partners; bring forward qualifying capex where economics are durable.
  • Evaluate whether data-centre and electronics-tax relief improves fulfilment automation, cloud, edge-computing and domestic-device sourcing business cases.

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