The Lok Sabha has passed a Bill seeking to amend the Payment and Settlement Systems Act, 2007, paving the way for the government to permit banks, payment service providers and other notified service providers to levy charges on transactions made through the Unified Payments Interface (UPI) and other electronic payment modes.
The proposed amendment marks a significant shift in India’s digital payments framework. While UPI transactions have so far remained free of transaction charges for users, the government’s approach seeks to create a sustainable revenue model for banks, payment service providers (PSPs) and payment infrastructure companies that support the country’s rapidly expanding digital payments ecosystem.
The amendment seeks to remove the existing legal provision that prevents banks and payment service providers from imposing Merchant Discount Rate (MDR) on notified electronic payment modes. Once the changes come into effect, the government will have the power to notify electronic payment systems on which such charges may be levied.
UPI has emerged as one of the world's largest real-time digital payment platforms, transforming the way consumers and businesses make everyday transactions. From small retailers and street vendors to large businesses and e-commerce platforms, UPI has become a critical part of India's payments infrastructure. However, the rapid growth in transaction volumes has also increased the costs of maintaining payment networks and providing associated services.
The proposed framework is intended to allow small charges to be imposed on digital payment services while ensuring that the wider ecosystem remains commercially viable. The government is expected to balance the interests of consumers and small businesses with the financial sustainability of banks, PSPs and payment infrastructure providers.
At present, UPI transactions do not carry MDR, while certain other electronic payment systems have different charging structures. Real-time gross settlement (RTGS) and National Electronic Funds Transfer (NEFT) transactions, for instance, already attract service charges under applicable rules and arrangements.
The proposed changes are part of the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to amend multiple laws, including the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026.
The Bill was passed by the Lok Sabha through a voice vote after the House resumed proceedings at 2 pm following an earlier adjournment. Soon after the House reassembled, Union Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, for consideration and passage.
The move comes at a time when India's digital payments ecosystem is expanding at an unprecedented pace. The government has consistently promoted UPI as a key instrument for financial inclusion, reduced dependence on cash and improved the ease of doing business. The proposed charging mechanism, therefore, will need to be carefully calibrated so that it does not undermine the adoption of digital payments.
For consumers, the actual impact will depend on the charges eventually notified by the government and how banks and payment service providers choose to structure them. Small merchants and businesses will also be closely watching the implementation, as even modest transaction costs could influence their payment preferences.
The amendment consequently represents an important policy transition for India's digital payments sector. While it opens the door to a new revenue model for the institutions operating the country's payment infrastructure, the challenge for policymakers will be to ensure that any charges remain affordable and do not discourage consumers and businesses from using digital payments.
The passage of the Bill in the Lok Sabha thus sets the stage for a new phase in India's UPI ecosystem, where the emphasis will increasingly be on balancing rapid digital adoption with the long-term financial sustainability of the infrastructure supporting it.
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