The Indian government has introduced the Taxation and Other Laws (Amendment) Bill, 2026, in Parliament, which includes proposed changes to the Payment and Settlement Systems Act, 2007. While the bill does not immediately impose fees on Unified Payments Interface (UPI) transactions, it removes existing legal barriers that currently prevent banks and payment providers from charging a Merchant Discount Rate (MDR). This move has sparked widespread discussion about the future of digital payments, as the government seeks to create a flexible framework for the industry.
For years, UPI has been free for both consumers and merchants, a policy that helped drive India's massive shift toward digital transactions. However, the absence of MDR—a fee typically paid by merchants to cover processing and infrastructure costs—has led to concerns from banks and payment companies about the long-term financial sustainability of the ecosystem. Industry executives have argued that the current model limits their ability to invest in necessary upgrades, security, and broader infrastructure.
Under the proposed legal framework, the government would gain the authority to decide if and when fees should be applied. Reports suggest that any potential charges would likely target large merchants with significant annual turnovers, such as major e-commerce platforms, rather than small businesses or individual users. The goal is to balance the need for a self-sustaining payment network with the government's commitment to maintaining affordable digital access for the general public.
As the bill moves through the legislative process, the specific details regarding fee thresholds or percentage rates remain uncertain. For now, the government has emphasized that no final decision has been made to levy charges. The public and industry stakeholders are watching closely to see how this framework will be implemented and whether it will successfully address the funding gap without disrupting the widespread adoption of digital payments.