Parliament Clears Key Payment Law Amendment
The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, which includes significant changes to the Payment and Settlement Systems Act, 2007.
The amendment removes the earlier legal requirement that prohibited banks and payment service providers from levying charges on specified digital payment methods. Instead, the government will now have the authority to decide whether charges, including the Merchant Discount Rate (MDR), can be introduced on UPI and other digital payment systems.
No Immediate Charges On UPI
The passage of the Bill does not mean UPI users will start paying transaction fees immediately.
Instead, it creates the legal framework that allows the Central Government to notify charges in the future if required. Any decision regarding the rate, applicability, or categories of transactions that may attract MDR will be announced separately through official notifications.
Large Merchant Transactions May Be Targeted
Current discussions suggest that if MDR is introduced, it is likely to apply primarily to large merchant transactions rather than person-to-person payments.
One proposal under consideration is to levy 0.3% to 0.5% MDR on UPI transactions above ₹2,000 for merchants with an annual turnover exceeding the prescribed threshold. However, the government has not taken a final decision on the fee structure.
Why The Government Is Considering MDR
The digital payments ecosystem has expanded rapidly, but banks and payment service providers have argued that the zero-MDR policy makes it difficult to recover infrastructure and operational costs.
By enabling regulated merchant charges, the government aims to create a more sustainable business model for payment companies while supporting continued investments in payment infrastructure, cybersecurity, and innovation.
Consumers Likely To Continue Using Free UPI
Industry experts expect that person-to-person UPI transfers will continue to remain free, while any future charges are likely to focus on specific merchant transactions. The amendment provides flexibility for the government to modify digital payment policies as the ecosystem evolves without making UPI costlier for ordinary users.
Summary
The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, allowing the government to introduce Merchant Discount Rate (MDR) on UPI and other digital payments in the future. The Bill does not impose charges immediately but creates the legal framework for doing so. Any future MDR is expected to target large merchant transactions, while person-to-person UPI transfers are likely to remain free.
