New Delhi, Aug 6: The Lok Sabha on Thursday passed the Payment and Settlement Systems (Amendment) Bill, 2026, empowering the Central Government to authorise banks and payment system providers to levy charges, including Merchant Discount Rate (MDR), on specified Unified Payments Interface (UPI) and other digital payment transactions. The move marks a significant legislative shift in India’s rapidly expanding digital payments ecosystem.
The Bill amends the Payment and Settlement Systems Act, 2007, providing a legal framework under which the Centre may, if considered necessary, permit banks and payment service providers to recover transaction-related charges. While the legislation enables such charges, it does not automatically impose any fee on UPI transactions, leaving the decision to future government notifications and policy directions.
According to officials, the amendment is aimed at ensuring the long-term financial sustainability of India’s digital payment infrastructure by enabling banks and payment companies to recover part of the operational costs associated with processing digital transactions. Payment service providers have long argued that maintaining UPI infrastructure without any revenue model has become increasingly challenging as transaction volumes continue to rise.
The government has not yet announced the rate, scope, or categories of transactions on which charges, if any, may be levied. Reports indicate that policymakers are examining options that would primarily affect large commercial merchant transactions, while keeping person-to-person (P2P) transfers and small merchant payments free. Proposals under consideration include applying MDR only on high-value business transactions above a specified threshold.
The legislation comes at a time when UPI has become the backbone of India’s digital economy, processing billions of transactions every month and significantly reducing dependence on cash. The government has repeatedly emphasised its commitment to promoting secure, transparent, and inclusive digital payments while ensuring the continued growth of the payment ecosystem.
The Bill will now be taken up by the Rajya Sabha for consideration before becoming law. Even after enactment, any decision to introduce charges on UPI transactions will require separate notification and implementation by the Central Government. (KNC)
