Lok Sabha clears bill allowing potential charges on UPI transactions

The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, which includes a significant amendment to the Payment and Settlement Systems Act, 2007. This amendment grants the government the authority to permit banks and other payment service providers to levy charges on transactions made through the Unified Payments Interface (UPI) and other notified electronic payment modes. Prior to this amendment, Section 10A of the Payment and Settlement Systems Act, 2007, prohibited banks and system providers from imposing any charges on electronic payments. Additionally, Section 269SU of the Income Tax Act, 1961, mandates businesses with a turnover exceeding Rs 50 crore to accept payments through specified electronic modes, including UPI and RuPay debit cards, and these modes were generally exempt from charges. The amendment, passed by voice vote amid disruptions in the Lok Sabha, seeks to remove this existing legal provision that prevented the imposition of charges, specifically the Merchant Discount Rate (MDR), on notified electronic payment modes. While real-time payment systems like RTGS and NEFT already attract service charges, UPI transactions have, until now, remained exempt. It is crucial to note that the passage of this bill does not automatically introduce charges on UPI transactions. Instead, it empowers the central government to decide through future notifications which digital payment modes may attract charges. Therefore, as of now, UPI transactions continue under the existing framework, with no immediate change for users or merchants. The government's stated aim behind this amendment is to enable the levy of a nominal charge on digital payment services, thereby ensuring a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that support the country's rapidly expanding digital payments ecosystem. This move addresses the long-standing demand from the payments industry for compensation for the costs associated with maintaining and growing the digital payments infrastructure. Reserve Bank of India (RBI) Governor Sanjay Malhotra has commented on the need for sustainability in digital payments, stating that "costs have to be paid by someone." He emphasized that while the costs of running the digital payments ecosystem are already being absorbed somewhere in the economy, it is premature to discuss specific charges or who will ultimately bear them. However, he also indicated that direct charges on consumers for everyday transactions are not currently being considered and that most daily transactions, particularly those involving small vendors, are likely to remain free. Proposals being discussed include levying an MDR of 0.25% to 0.4% on UPI transactions above Rs 2,000 made to businesses, with small vendors and person-to-person (P2P) payments expected to remain exempt. The government has also clarified through the Ministry of Finance that there is "no consideration" for levying charges on UPI services, and that concerns of service providers for cost recovery will be met through other means. The amendment also includes provisions related to data centers, aiming to make India a more attractive destination for global capital and business by removing approval and notification requirements for foreign cloud companies and allowing Indian data centers to operate on a leased basis. This aspect of the bill is separate from the UPI charges discussion but was part of the same legislative package passed by the Lok Sabha. The news is significant for India's audience due to the widespread adoption of UPI for daily transactions and its implications for consumers, merchants, and the financial sector. The potential introduction of charges, even if limited, could alter the user experience and merchant costs associated with digital payments.

Frequently Asked Questions

Read Full Story on Quick Digest