UPI charges: Lok Sabha passes bill for government to make changes
The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, which amends Section 10A of the Payment and Settlement Systems Act, 2007.
The amendment removes the existing legal bar that prevented banks and payment system providers from levying a Merchant Discount Rate (MDR) on UPI, BHIM-UPI and RuPay debit card transactions.
The change does not itself impose any charge; it empowers the Central Government to notify, by a future order, which electronic payment modes may carry an MDR and at what rate.
The Bill was passed by voice vote without detailed debate; the government has clarified that no MDR has been imposed on ordinary UPI users as of the passage of the Bill.
Merchant Discount Rate (MDR) and the Payment and Settlement Systems Act, 2007
MDR is the fee a merchant pays to their bank/payment aggregator for accepting digital payments, usually a small percentage of the transaction value, which is shared among the issuing bank, acquiring bank, payment network and payment gateway. The Payment and Settlement Systems Act (PSS Act), 2007 is the principal statute regulating payment systems in India and empowers the Reserve Bank of India (RBI) as the designated authority to regulate and supervise payment systems.
Key Details
- Section 10A of the PSS Act, 2007 was inserted to bar payment system providers/participants from charging any cost on the electronic modes prescribed under Section 269SU of the Income-tax Act, 1961 — this created the "zero-MDR" regime.
- The prescribed zero-MDR modes (notified via Rule 119AA of the Income-tax Rules) are UPI, UPI QR code and RuPay debit cards.
- The zero-MDR mandate took effect from 1 January 2020, following amendments introduced through the Finance Act, 2019.
- The 2026 amendment delinks Section 10A from the Income-tax Act provision and instead lets the Central Government notify applicable payment modes and MDR treatment directly, giving the executive flexibility to revise the policy without further legislative amendment.
The Bill just passed dismantles the six-year-old statutory zero-MDR guarantee for UPI/RuPay by giving the government rule-making power over MDR, rather than a blanket legal prohibition.
Section 269SU — Mandatory Digital Payment Acceptance
Section 269SU of the Income-tax Act, 1961 requires specified businesses to offer prescribed electronic modes of payment to customers, backing the zero-MDR push with a compliance mandate on the acceptance side.
Key Details
- Applies to businesses/persons with an annual turnover exceeding ₹50 crore in the preceding financial year.
- Non-compliance attracts a penalty under Section 271DB of the Income-tax Act — ₹5,000 per day of default.
- The Central Board of Direct Taxes (CBDT) notified UPI, UPI QR code and RuPay debit card as the prescribed modes in December 2019, operative from 1 January 2020.
The 2026 amendment retains the acceptance mandate under Section 269SU but severs the automatic zero-MDR linkage in the PSS Act, meaning merchants may still have to accept UPI/RuPay but could, in future, be charged an MDR depending on government notification.
UPI's Institutional Architecture — NPCI and RBI Oversight
The Unified Payments Interface (UPI) is operated by the National Payments Corporation of India (NPCI), a not-for-profit entity set up under Section 25 of the Companies Act, 1956 (now Section 8 of the Companies Act, 2013) and regulated by the RBI under the PSS Act, 2007.
Key Details
- NPCI was incorporated in 2008 and launched UPI in 2016; it also operates RuPay, IMPS, BHIM, Aadhaar Enabled Payment System (AEPS) and FASTag.
- The RBI, as the payment systems regulator under the PSS Act, 2007, authorizes and supervises all payment system operators, including NPCI.
- To support the zero-MDR ecosystem, the Union Government has separately provided fiscal incentives to banks/PSPs (an incentive scheme for low-value UPI transactions) to offset the revenue loss from the absence of MDR.
Any future MDR notified under the amended Section 10A will directly affect the economics of UPI's ecosystem participants (issuing banks, NPCI, payment aggregators) who have so far depended on government incentive schemes rather than merchant fees for revenue.
- Bill passed: Taxation and Other Laws (Amendment) Bill, 2026 — passed by the Lok Sabha on 6 August 2026, by voice vote.
- Provision amended: Section 10A, Payment and Settlement Systems Act, 2007.
- Zero-MDR regime in force since: 1 January 2020 (via Finance Act, 2019 amendments).
- Businesses covered under Section 269SU mandate: annual turnover above ₹50 crore.
- Prescribed zero-MDR modes: UPI, UPI QR code, RuPay debit cards.
- Penalty for non-acceptance of prescribed modes: ₹5,000 per day under Section 271DB, Income-tax Act.