The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, paving the way for the government to permit banks and payment service providers to levy charges on Unified Payments Interface (UPI) transactions and other notified electronic payment systems.

The legislation amends the Payment and Settlement Systems Act, 2007, removing the legal restriction that currently prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified digital payment modes.

What Does the New Bill Change?

The amendment authorises the Central Government to decide whether charges can be imposed on specific electronic payment modes through future notifications.

Importantly, the Bill does not immediately introduce any UPI charges. Instead, it creates the legal framework that allows the government to permit such charges at a later stage.

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Why Is the Government Making This Change?

According to the government’s approach, the objective is to create a sustainable revenue model for:

• Banks
• Payment Service Providers (PSPs)
• Digital payment infrastructure companies

The proposal seeks to ensure that the ecosystem supporting India’s rapidly growing digital payments network remains financially viable while keeping costs reasonable for consumers and small businesses.

Merchant Discount Rate (MDR) Explained

Merchant Discount Rate (MDR) is the fee paid by merchants to banks and payment service providers for processing digital transactions.

While payment systems such as:

• RTGS
• NEFT

already involve service charges, UPI transactions have remained exempt from MDR since 2020.

The amendment removes the statutory barrier that prevented the government from allowing MDR or similar charges on notified electronic payment systems.

Bill Passed by Voice Vote

The Bill was passed through a voice vote in the Lok Sabha after the House resumed proceedings at 2 PM following an earlier adjournment.

Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, which proposes amendments to:

• Payment and Settlement Systems Act, 2007
• Income Tax Act, 2025
• Finance Act, 2026

What Happens Next?

Although the Bill has been passed by the Lok Sabha, UPI transactions will continue under the existing framework until the government issues a notification specifying:

• Which electronic payment modes may attract charges.
• Whether charges will apply only to merchants or other categories.
• The rate and scope of any future fees.

Until such notifications are issued, there is no immediate change in how UPI payments are processed.

Key Highlights

• Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026.
• The Bill amends the Payment and Settlement Systems Act, 2007.
• The amendment authorises the government to permit charges on UPI and other notified electronic payment modes.
• The legal restriction preventing Merchant Discount Rate (MDR) on notified payment systems has been removed.
• The Bill does not immediately impose UPI charges.
• Future charges, if any, will depend on government notifications.
• The proposal aims to support banks, payment service providers and digital payment infrastructure companies with a sustainable revenue model.

FAQs

Has the Lok Sabha approved UPI transaction charges?

The Lok Sabha has passed a Bill that authorises the government to permit charges on UPI and other notified electronic payment modes. It does not immediately impose any charges.

Will users start paying for UPI transactions now?

No. The Bill only provides the legal framework. Any charges will require a separate government notification.

What is Merchant Discount Rate (MDR)?

Merchant Discount Rate (MDR) is a fee paid by merchants to banks and payment service providers for processing digital payments.

Why was the law amended?

The government says the amendment aims to create a sustainable financial model for banks, payment service providers and digital payment infrastructure while supporting continued growth of digital payments.

Which law has been amended?

The amendment modifies the Payment and Settlement Systems Act, 2007 as part of the Taxation and Other Laws (Amendment) Bill, 2026.

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The debate over UPI transaction charges has intensified after RBI Governor Sanjay Malhotra indicated that India’s digital payment infrastructure cannot remain cost-free indefinitely.

Speaking after the Reserve Bank of India’s monetary policy announcement, Malhotra said it is too early to conclude whether charges will be introduced but acknowledged that someone ultimately has to bear the cost of operating the UPI ecosystem.

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What Did the RBI Governor Say?

Responding to a question on whether UPI transactions could soon attract charges, RBI Governor Sanjay Malhotra said:

“It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone.”

He added that the priority is to ensure India’s digital payments infrastructure continues to grow and remain sustainable.

Malhotra further clarified that the costs already exist but are currently being absorbed elsewhere.

“The cost is already getting passed on. It may not be directly to the user, but someone is paying the cost.”

Why Is MDR Being Discussed Again?

UPI transactions are currently free for consumers as well as merchants because the government removed the Merchant Discount Rate (MDR) on UPI payments in January 2020.

Instead, the government has compensated banks and payment service providers through incentive schemes.

However, with UPI processing billions of transactions every month, the cost of maintaining payment infrastructure has increased substantially, while government subsidies cover only part of these expenses.

This has revived discussions on bringing back MDR for certain transactions.

What Is Being Proposed?

According to reports, amendments to the Payment and Settlement Systems Act, recently tabled in Parliament by Finance Minister Nirmala Sitharaman, could allow MDR on select UPI transactions.

The proposal under discussion includes:

• MDR of 0.3% to 0.5%
• Applicable only on transactions above ₹2,000
• Limited to large merchants crossing a specified turnover threshold

No final decision has been announced.

Will Consumers Have to Pay?

Based on the proposal currently being discussed, ordinary consumers are not expected to pay any fee.

Instead, the MDR would be charged to eligible large businesses accepting UPI payments.

This means:

• Paying your neighbourhood grocery or vegetable vendor would likely remain free.
• Large retail chains accepting high-value UPI payments could pay a small processing fee.

However, the proposal is still under consideration and no final rules have been notified.

Why Does UPI Need Funding?

Although UPI appears free to users, operating the network involves significant costs, including:

• Payment processing infrastructure
• Bank settlement systems
• Fraud detection and cybersecurity
• Technology upgrades
• Server maintenance
• Customer support

Currently, these expenses are shared between the government, banks and payment service providers.

The RBI Governor indicated that a long-term funding mechanism will be necessary to keep the ecosystem sustainable.

What Happens Next?

At present, no UPI charges have been introduced.

The proposed legal amendments simply create the possibility of reintroducing MDR for specific categories of merchant transactions.

Whether the government ultimately chooses MDR or another funding model remains to be seen.

Until an official notification is issued, UPI payments for consumers continue to remain free.

Key Highlights

• RBI Governor Sanjay Malhotra said it is too early to confirm UPI transaction charges.
• He stated that someone must ultimately bear the cost of running UPI infrastructure.
• Parliament is considering amendments that could permit MDR on certain UPI transactions.
• Reports suggest MDR of 0.3%–0.5% may apply only to transactions above ₹2,000 at eligible large merchants.
• Everyday consumer UPI payments and small merchants are expected to remain unaffected under the proposal.
• No final decision has been announced by the government.

FAQs

Are UPI transactions becoming chargeable?

No. UPI transactions remain free. The government is considering amendments that could allow MDR on certain merchant transactions, but no final decision has been announced.

What did the RBI Governor say about UPI charges?

RBI Governor Sanjay Malhotra said it is premature to discuss charges but noted that maintaining the UPI ecosystem involves costs that “have to be paid by someone.”

What is Merchant Discount Rate (MDR)?

MDR is a fee paid by merchants to banks and payment service providers for processing digital payment transactions.

Will consumers have to pay UPI charges?

Based on the proposal being discussed, consumers are not expected to pay directly. Any MDR, if introduced, would likely apply to eligible large merchants on higher-value transactions.

Will small shopkeepers be affected?

According to the proposal under discussion, small merchants and routine consumer UPI payments are expected to remain outside the scope of MDR.

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The reason for this is that the National Payments Corporation of India (NPCI) provides facilities to them. However, there is a discussion on imposing fees on big merchants while keeping the transactions free for small businesses.

The central government is making big preparations regarding UPI. The government is preparing to re-implement MDR charge on UPI. This charge is being prepared to be imposed not only on UPI but also on RuPay debit cards. If this happens, digital payments may be affected. This charge was waived by the government in the year 2022. But, now fintech companies say that big merchants have the ability to bear it. Therefore, Merchant Discount Rate (MDR) should be charged on such merchants.

Let us tell you that UPI transactions are increasing rapidly. Therefore, the government wants that big traders should also bear some of its expenses. In the budget for the year 2025-26, the government has reduced the payment subsidy from Rs 3,500 crore to Rs 437 crore. Due to which banks are incurring losses. Before the year 2022, merchants had to pay some fees. Which is called Merchant Discount Rate (MDR). This fee was given to the bank in exchange for doing the transaction.

Big businesses may face a setback

According to media reports, bankers say that a banker told that banks have given a proposal to the government. It has been suggested that MDR should be applied to those merchants. Whose annual GST turnover is more than 40 lakh rupees. The government is also planning to start a tiered pricing system. Under this system, big merchants will have to pay higher charges. On the other hand, small merchants will have to pay less fees. A proposal to impose MDR on UPI payments has been sent to the central government by industry banks. Now the department is considering this matter. If this happens, then MDR will return once again.

Know what is MDR?

In the digital payment industry, Merchant Discount Rate (MDR) is the amount that a merchant or shopkeeper has to pay for the real-time payment made by the customer. Currently, there is no MDR applicable on UPI and RuPay debit card payments. These payments are made easy through the National Payments Corporation of India (NPCI). But now the government is preparing to impose merchant charges on these transactions as well.

1,611 crore UPI transactions took place in February

Let us tell you that in February 2025, 1611 crore transactions were done through Unified Payment Interface (UPI). During this period, a total amount of Rs 21.96 lakh crore was transferred. The number of transactions has increased by 33 percent on an annual basis.

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