Lok Sabha Passes Bill Enabling Government to Allow Charges on UPI Transactions

NEW DELHI, August 6: The Lok Sabha on Thursday passed a Bill to amend the Payment and Settlement Systems Act, 2007, empowering the government to permit banks and other payment service providers to levy charges on Unified Payments Interface (UPI) transactions and other notified electronic payment modes.

The amendment, passed by voice vote amid Opposition protests, removes the existing legal provision that prevents banks and payment system providers from imposing Merchant Discount Rate (MDR) on specified electronic payments.

The changes are part of the Taxation and Other Laws (Amendment) Bill, 2026, which was moved by Finance Minister Nirmala Sitharaman after the House resumed at 2 pm following an earlier adjournment. The legislation also seeks amendments to the Income Tax Act, 2025 and the Finance Act, 2026.

Under the amended provision, the Central Government will be able to notify one or more electronic modes of payment on which charges may be levied. At present, UPI transactions are exempt from such charges, while real-time payment systems such as RTGS and NEFT involve applicable service charges.

The government’s approach seeks to establish a sustainable revenue model for banks, payment service providers and payment infrastructure firms supporting India’s expanding digital payments ecosystem.

RBI Governor Sanjay Malhotra, speaking on Wednesday, said it was “premature” to discuss the actual levy of MDR on digital payments. He said payment infrastructure requires investment and the cost would ultimately have to be borne either through taxes or a user-pays model.

The issue of MDR has remained contentious, with banks and payment industry stakeholders seeking charges to support the growing costs of maintaining and expanding digital payment infrastructure. Some stakeholders have suggested that any future MDR could be considered for higher-value merchant transactions rather than person-to-person payments.

The amendment, however, does not itself impose any charge on UPI transactions and only creates a legal framework enabling the government to notify electronic payment modes for such charges. (Agencies)