The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, paving the way for the Central government to authorise banks and payment service providers to levy charges on Unified Payments Interface (UPI) and other notified digital payment modes in the future.
The amendment to the Payment and Settlement Systems (PSS) Act, 2007 does not immediately introduce charges on UPI transactions but removes the legal restriction that barred banks from collecting Merchant Discount Rate (MDR) on specified electronic payment modes.
Finance Minister Nirmala Sitharaman moved the Bill, which was passed by voice vote amid disruptions in the House.
The government has argued that the move is intended to create a sustainable revenue model for banks and payment infrastructure providers, while merchants, fintech firms and digital payment users are closely watching how future notifications may affect the country’s largely free UPI ecosystem.
Framework for Future UPI Charges
The amendment replaces the existing provision under Section 10A of the PSS Act, allowing the Centre to specify, through notification, which electronic payment modes may attract charges in the future.
At present, UPI transactions remain free, unlike RTGS and certain NEFT transactions that already attract service charges.
Explaining the rationale, the government said the amendment would enable a “sustainable revenue model” for banks, payment service providers (PSPs) and companies that build and maintain India’s digital payments infrastructure.
Finance Minister Nirmala Sitharaman introduced the Bill as part of a broader taxation package, while Reserve Bank of India Governor Sanjay Malhotra said it was premature to speculate on the eventual MDR structure but stressed that maintaining public payment infrastructure comes at a cost.
“Someone has to pay the cost,” he remarked, adding that the burden could either be met through taxes or a user-pays model such as MDR. Finance Minister Sitharaman later clarified that MDR, if introduced, would be borne by merchants and not consumers.
Balancing Growth with Sustainability
Since the government removed MDR on RuPay debit cards and UPI payments in 2020, India’s digital payments ecosystem has witnessed unprecedented growth, making UPI the country’s preferred mode of retail payments.
However, banks and payment companies have long argued that processing billions of transactions without a revenue stream places increasing pressure on infrastructure, cybersecurity and technology investments.
Industry experts believe the amendment merely creates the legal framework for future policy decisions rather than introducing an immediate fee.
Reports suggest that policymakers are exploring options such as applying MDR only to high-value merchant transactions while continuing to protect peer-to-peer transfers and smaller payments. Any final structure would require a separate government notification after further consultation.
The Logical Indian’s Perspective
India’s digital payments revolution has fundamentally reshaped the way people in India send, receive and manage money.
What was once a cash-heavy, often time-consuming process has now become almost instantaneous, with UPI enabling real-time transfers through just a mobile phone.
This shift has not only improved convenience for urban users but has also brought millions of first-time users, small merchants, street vendors and rural households into the formal financial system, significantly advancing financial inclusion.
As policymakers evaluate how to sustain and scale this rapidly growing ecosystem, the challenge lies in balancing innovation with affordability.
The success of UPI has largely been driven by its zero-cost structure for users, which has encouraged widespread adoption. Any future discussion around introducing charges must therefore be handled with caution, ensuring that the core principle of accessibility is not compromised.
Experts suggest that if a pricing framework is ever considered, it should be built on transparency and backed by clear economic evidence, rather than being implemented abruptly.
It would also require extensive consultation with all stakeholders, including consumers who rely on UPI for daily transactions, merchants who benefit from low-cost digital payments, banks that maintain the infrastructure, and fintech companies that innovate on top of the system.
Such a collaborative approach can help identify who bears the cost of maintaining the system without discouraging usage or slowing down digital adoption.
Ultimately, the goal should be to preserve public trust in India’s digital payments ecosystem while ensuring that the underlying infrastructure remains financially sustainable and capable of evolving with growing demand.
Do you think introducing a framework for possible UPI charges is the right way to strengthen India’s digital payments ecosystem, or should zero-cost UPI remain a public priority? Share your views.
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