In a significant policy shift, the Lok Sabha on Thursday passed an amendment to the Payment and Settlement Systems Act, 2007, giving the government the legal authority to allow banks and payment service providers to impose charges on transactions carried out through the Unified Payments Interface (UPI) and other digital payment platforms.
The amendment removes the statutory restriction that prevented banks and payment service providers from collecting the Merchant Discount Rate (MDR) on notified electronic payment modes. It was approved by voice vote amid disruptions in the House.
Currently, digital fund transfer systems such as RTGS and NEFT attract service charges, while UPI transactions have remained free for users and merchants. The newly passed legislation does not introduce charges immediately but empowers the government to notify such fees in the future.
The amendment is part of the Taxation and Other Laws (Amendment) Bill, 2026, which also proposes changes to the Income Tax Act, 2025, and the Finance Act, 2026. Finance Minister Nirmala Sitharaman moved the Bill for consideration after the Lok Sabha reconvened following an earlier adjournment.
According to the government, the objective is to create a financially sustainable framework for India’s digital payments ecosystem. Officials believe that allowing nominal charges on certain digital payment services could help banks, payment service providers (PSPs), and payment infrastructure companies recover operational costs while continuing to expand digital payment infrastructure.
The move is expected to provide greater flexibility in framing future policies on digital payment charges. However, any decision to levy fees on UPI or other electronic payment modes will require separate government notification, meaning users will continue to enjoy free UPI services unless such charges are formally introduced.