Banks and other service providers in India can now be allowed to levy charges on payments through unified payments interface (UPI) and other notified electronic payment modes as Lok Sabha on Thursday, August 6, passed a Bill to amend the Payment and Settlement Systems Act, 2007.
The amendment Bill, which sought to dispel the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes, was passed by the House without discussion amid din.
Also read: 29 years ago, Dharmendra Pradhan protested against a paper leak in Odisha, got beaten up by police
The Bill was the result of the financial services industry complaining for long that there is little growth in digital payments because payment companies earn no fee on UPI transactions and therefore hardly invest anything in the ecosystem.
Union Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, to amend the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026, for a discussion and passage.
Also read: True Love Stories: The five stations of love in trans life
According to sources, government wants to levy a small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that run the digital payments ecosystem.
At present, there is no decision to charge individual users for making routine UPI payments. So UPI will continue to be free for individual citizens. As per the prevalent laws, no bank or payment system provider can impose any charge on anyone, either directly or indirectly, for using the electronic modes of payment.
Also read: Rice Water: The timeless beauty elixir that continues to stand the test of time
While government is yet to allow the return of Merchant Discount Rate (MDR)—a fee paid by merchants to banks and payment service providers for processing digital payments—the passage of the amendment Bill has given government the legal authority to allow MDR or other charges in the future by notification. MDR has effectively been zero on UPI and RuPay debit card transactions since 2020.
UPI, one of the world’s largest real-time payments networks, processed 23.6 billion transactions worth 29.9 trillion rupees ($313.5 billion) in July, said Reuters, citing official data. Walmart’s PhonePe and Alphabet’s Google Pay dominate payments via UPI, it said.
It being likely that government may allow MDR on UPI transactions above Rs 2,000 to businesses, industry body ASSOCHAM’s Secretary General Saurabh Sanyal said on Thursday that it would harm micro, small and medium enterprises (MSMEs) as the additional transaction cost may increase their financial burden and discourage digital payments.
