The Lok Sabha has passed a key bill amending the Payment and Settlement Systems Act, 2007, granting the government the authority to allow banks and payment service providers (PSPs) to levy charges on UPI and other electronic payment systems.
The Taxation and Other Laws (Amendment) Bill, 2026—moved by Finance Minister Nirmala Sitharaman—was passed by voice vote without discussion amid opposition disruptions.
Key Takeaways from the Amendment
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Removal of Zero-Charge Mandate: The bill amends Section 10A of the Payment and Settlement Systems Act, effectively lifting the legal prohibition on charging a Merchant Discount Rate (MDR) for notified digital payment modes like RuPay debit cards and BHIM-UPI.
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Government Discretion: Instead of a blanket ban, the central government will now have the power to specify which electronic payment channels may attract fees.
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Targeted Charges: The intent is to establish a small fee to create a sustainable revenue model for banks, PSPs, and digital payment infrastructure firms without imposing a heavy burden on consumers and small businesses.
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Current Standing: Real-time transfer networks like RTGS and NEFT currently carry service fees, whereas UPI has remained entirely exempt until now.
RBI Governor’s Perspective: The “User Pays” Principle
Addressing the development, Reserve Bank of India (RBI) Governor Sanjay Malhotra noted that discussing specific MDR rates is still premature, but emphasized the economic reality behind digital infrastructure:
“Costs have to be paid by someone… The choices before us are simple: either the general public has to pay for it through taxes, or we have to levy the merchant discount rate (MDR), following the ‘user pays’ model.”
Industry observers anticipate that any future charges will likely target high-value merchant transactions rather than standard peer-to-peer (P2P) transfers.
