The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, paving the way for the government to modify the existing zero-Merchant Discount Rate (MDR) framework for Unified Payments Interface (UPI), RuPay cards and other notified electronic payment modes. While the amendment authorises future changes to the legal framework, no decision has yet been taken on imposing charges on UPI transactions.
Key Takeaways on UPI Charges Bill Passed by Lok Sabha
- Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on Thursday.
- The amendment seeks to remove the legal provision that currently prohibits charges on notified electronic payment modes.
- The Bill allows the central government to specify electronic payment modes through notification.
- No final decision has been taken on imposing Merchant Discount Rate (MDR) on UPI transactions.
- Finance Minister Nirmala Sitharaman said any future charge would apply to merchants and not users.
- RBI Governor Sanjay Malhotra said it is “premature” to discuss MDR at present.
- Real-time payment systems such as RTGS and NEFT already involve service charges.
- Reports suggest MDR, if introduced, may apply only to merchant transactions above a specified limit.
What the Lok Sabha Bill Proposes
The Lok Sabha passed the Bill without discussion amid disruptions in the House. The legislation seeks to amend the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026.
Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, for consideration after the House reconvened at 2 pm following an earlier adjournment. The Bill was subsequently passed through a voice vote.
One of the key objectives of the amendment is to remove the existing legal provision that prevents banks and payment service providers from imposing Merchant Discount Rate (MDR) on notified electronic payment modes.
The proposed amendment also removes the linkage between the Payment and Settlement Systems Act and the Income Tax Act, providing legal backing for the government to modify the current zero-MDR framework governing UPI and RuPay transactions.
Changes Proposed in the Payment and Settlement Systems Act
The Bill proposes a significant amendment to Section 10A of the Payment and Settlement Systems Act, 2007.
The amendment states:
“In the Payment and Settlement Systems Act, 2007, in Section 10A, for the words, figures and letters ‘the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961’, the words ‘one or more electronic modes of payment as the central government may, by notification, specify’ shall be substituted.”
At present, Section 10A prohibits banks and payment system providers from imposing charges, either directly or indirectly, on electronic payment modes prescribed under Section 269SU of the Income Tax Act.
Section 269SU requires businesses with an annual turnover exceeding ₹50 crore to provide specified electronic payment facilities, including:
- BHIM-UPI QR codes
- RuPay debit cards
- Other prescribed digital payment methods
Current Position of Different Payment Systems
The existing framework treats different payment systems differently.
| Payment Mode | Present Status |
| UPI transactions | No MDR or service charge |
| RuPay transactions | No MDR |
| RTGS payments | Service charges applicable |
| NEFT payments | Service charges applicable |
Real-time payment systems such as RTGS and NEFT already involve service charges. However, UPI transactions have so far remained exempt from such charges.
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Government’s Approach Towards Digital Payment Charges
According to the provisions discussed in the Bill, the government’s approach aims to introduce a small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for:
- Banks
- Payment service providers (PSPs)
- Payment infrastructure companies
The objective is to support the institutions that operate and expand India’s digital payment ecosystem.
Outside Parliament, Congress MP Jairam Ramesh said that the Bill opens the door for MDR on digital payments.
Responding to the criticism, Finance Minister Nirmala Sitharaman clarified that any future charge would apply to merchants rather than individual users. She added that such a framework would help banks and fintech companies invest in infrastructure and innovation.
The Finance Minister also stated that the UPI and services steering committee headed by the National Payments Corporation of India (NPCI) has not yet taken a decision on MDR and that the matter would be discussed after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.
Possible MDR Structure Under Discussion
According to officials, banks and fintech companies may be permitted to levy charges ranging from 0.25% to 0.40% on merchant payments exceeding ₹2,000, subject to an overall cap.
Officials have argued that:
- The proposed levy would remain lower than charges imposed on credit and debit cards.
- Most merchants are unlikely to pass the cost on to consumers.
- Peer-to-peer transactions may remain outside the MDR framework.
However, no final decision has been announced.
RBI Governor Sanjay Malhotra’s Remarks on MDR
Speaking on Wednesday, RBI Governor Sanjay Malhotra described discussions on MDR as “premature”.
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He said that investment in public infrastructure such as digital payments is essential and that the associated costs must be borne by someone.
According to Malhotra, the choices are straightforward:
- The general public pays through taxes.
- The merchant discount rate follows the “user pays” model.
He stated that the government is currently introducing the amendment and emphasised that strengthening and improving payment infrastructure remains the immediate priority.
“The important aspect is that someone has to pay for the service,” the RBI Governor said.
Malhotra further explained that under the “user pays” principle, merchants or individuals conducting transactions bear the charges, while in the absence of MDR, the cost is effectively covered through taxes paid by the public.
He added that policymakers will continue to explore different options, including MDR and other alternatives, while observing how the situation evolves.
Digital Payments Debate Moves Into a New Phase
The question of MDR has become a major issue within India’s banking and payments industry, with banks and payment stakeholders advocating for a sustainable revenue mechanism even as UPI transactions continue to expand rapidly.
Although the new legislation gives the government the authority to modify the legal framework governing digital payment charges, no fee has yet been imposed on UPI users. Any future decision will depend on notifications issued by the central government and deliberations within the payments ecosystem.
FAQs on UPI Charges Bill Lok Sabha
1. Has the Lok Sabha approved charges on UPI transactions?
No. The Bill only enables future changes to the legal framework. No charge has been imposed yet.
2. What is Merchant Discount Rate (MDR)?
MDR is a fee charged on digital transactions, usually paid by merchants to banks and payment providers.
3. Will ordinary UPI users have to pay charges immediately?
No. Finance Minister Nirmala Sitharaman said any future charge would apply to merchants, not users.
4. Which law has been amended?
The Bill seeks to amend the Payment and Settlement Systems Act, 2007, among other laws.
5. What did RBI Governor Sanjay Malhotra say?
He said discussions on MDR are premature and stressed that payment infrastructure costs must be funded somehow.
