- The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, opening the door for banks and payment system providers to charge fees on UPI and RuPay debit card transactions.
- Government sources indicate the actual MDR would apply to a much smaller category of merchants—those with turnover above roughly ₹1-1.5 crore—and only on individual transactions above ₹2,000.
- A possible MDR of 0.25-0.4% (industry sources) or nominal, far lower than card MDRs (Finance Ministry) is being discussed—this would exclude roughly 95% of current UPI transactions.
- The Payment and Settlement Systems Act, 2007 currently bars banks from charging for payments made via modes listed under Section 269SU of the Income Tax Act, 1961—which includes RuPay debit cards, UPI, and BHIM-UPI (including QR code payments).
- The 2026 Amendment Bill modifies this provision, empowering the government to notify which transactions can attract an MDR charge in future.
The Lok Sabha's recent passage of the Taxation and Other Laws (Amendment) Bill, 2026 has stirred discussions regarding transaction fees on UPI and RuPay payments. While the government has mandated zero Merchant Discount Rate (MDR) on these transactions since 2020, the new bill allows for potential fees.1
The Finance Ministry has assured that UPI transactions will remain free for consumers, with only a nominal fee possibly applicable to certain merchants. This clarification comes amidst concerns that the amendment could lead to increased costs for users.
Under the ‘Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (P2M)’, initiated in December 2021, the government subsidizes UPI transactions below ₹2,000, with a subsidy capped at 0.15% of transaction value. However, the total subsidy provided from 2021-22 to 2024-25 was only ₹8,730 crore, covering just 11% of the actual costs incurred by the payments industry, according to the Standing Committee on Finance.
The amendment modifies the Payment and Settlement Systems Act, 2007, allowing the government to specify which transactions may incur MDR charges in the future. Sources indicate that the actual MDR would likely apply to a much smaller category of merchants with turnovers above ₹1-1.5 crore, and only on transactions exceeding ₹2,000. A possible MDR of 0.25-0.4% is under discussion, which would exclude approximately 95% of current UPI transactions.234
“The bill modifies the Payment and Settlement Systems Act, 2007, allowing the government to notify future MDR charges. However, sources indicate MDR would apply only to merchants with turnover above ₹1-1.5 crore and transactions over ₹2,000, excluding roughly 95% of UPI transactions.”
Vajiram & Ravi
