The Lok Sabha has passed legislation that gives the Centre the power to allow banks and payment service providers to levy charges on Unified Payments Interface (UPI) transactions.
The Taxation and Other Laws (Amendment) Bill, 2026, passed by voice vote on August 6, amends the Payment and Settlement Systems Act, 2007. The amendment removes the existing legal restriction that prevents banks and payment service providers from imposing Merchant Discount Rate (MDR) charges on specified electronic payment methods.
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No UPI fee has been imposed yet
The legislation does not introduce an immediate charge on UPI transactions. Instead, it allows the Central government to decide through a future notification which electronic payment modes can attract charges. The amendment replaces the existing reference to payment modes prescribed under Section 269SU of the Income Tax Act with a provision allowing the government to specify “one or more electronic modes of payment” that may be subject to charges.
This means that UPI payments will continue to operate under the existing zero-charge framework unless the government subsequently issues a notification permitting charges.
Why the government is opening the door to MDR
The move comes amid growing discussions around the cost of maintaining India’s rapidly expanding digital payments infrastructure. Unlike UPI, payment systems such as RTGS and NEFT already involve service charges. UPI, meanwhile, has remained largely free for users and merchants, with the government supporting the ecosystem through incentive schemes.
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Banks, payment service providers and other industry stakeholders have argued that a sustainable revenue model is needed as transaction volumes continue to rise. The proposed framework could allow some of these infrastructure costs to be recovered through transaction-based charges.
RBI Governor says it is too early to discuss MDR
RBI Governor Sanjay Malhotra said a day before the Bill’s passage that it was premature to speculate about the immediate return of MDR on digital payments. He pointed out that digital payment infrastructure requires continued investment and said the costs ultimately have to be borne either through public funding and taxes or through a “user pays” model involving MDR.
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The Governor also indicated that the government is currently working on the legal framework and that the eventual structure of charges would depend on how the policy develops.
Will all UPI transactions be charged?
There is currently no indication that every UPI transaction will attract a fee. Industry discussions have previously centred on the possibility of applying MDR selectively, particularly to higher-value merchant transactions, while keeping person-to-person (P2P) transfers outside the charging framework. However, the government has not announced any specific transaction value, rate or category for future UPI charges. For now, therefore, consumers do not need to pay a new fee simply because the Bill has been passed.
Indrani Priyadarshini is a journalist and editorial professional specialising in technology, artificial intelligence, smart cities, green energy, and digital transformation. With over four years of experience in tech journalism and digital media, she is known for turning complex industry developments into clear, engaging, and insightful stories. Her expertise spans reporting, editorial strategy, digital publishing workflows, and in-depth coverage of emerging technologies shaping the future.
