The Lok Sabha has passed a Bill amending the Payment and Settlement Systems Act, allowing the government to permit charges on UPI and other notified digital payment modes by removing the legal restriction on Merchant Discount Rate.
The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, paving the way for the central government to permit banks and payment service providers to levy charges on Unified Payments Interface (UPI) and other notified electronic payment modes.
The amendment changes provisions of the Payment and Settlement Systems Act, 2007, removing the existing legal restriction that barred banks and payment system providers from charging Merchant Discount Rate (MDR) on specified electronic payment methods.
The Bill was passed by voice vote after the House resumed proceedings at 2 pm following an earlier adjournment.
The amendment replaces the reference to electronic payment modes prescribed under Section 269SU of the Income Tax Act with a provision allowing the central government to notify one or more electronic payment modes for which charges may be permitted.
The revised provision states that the government may specify the applicable electronic payment modes through an official notification after the law comes into force.
At present, Section 10A of the Payment and Settlement Systems Act prohibits banks and payment system providers from imposing any direct or indirect charges on prescribed electronic payment modes.
Meanwhile, Section 269SU of the Income Tax Act requires businesses with an annual turnover exceeding ₹50 crore to provide specified digital payment options, including BHIM-UPI QR codes and RuPay debit cards.
While RTGS and NEFT transactions already attract service charges in certain cases, UPI payments have so far remained exempt from Merchant Discount Rate (MDR).
The amendment itself does not immediately introduce charges on UPI transactions. Instead, it authorises the government to notify eligible electronic payment modes and permit charges in the future.
According to the government, the proposed changes aim to create a sustainable revenue model for banks, payment service providers (PSPs) and payment infrastructure companies that support India’s rapidly expanding digital payments ecosystem.
The proposal seeks to balance the interests of consumers and small businesses while ensuring adequate investment in payment infrastructure.
A day before the Bill was passed, Reserve Bank of India Governor Sanjay Malhotra described discussions on imposing MDR on digital payments as “premature”.
He said investment in payment infrastructure must be funded either through taxation or by adopting a “user pays” model through Merchant Discount Rate.
Malhotra noted that the government is currently bringing the legislative amendment and said it would be appropriate to wait for further developments before drawing conclusions.