Lok Sabha Approves Key Amendment to Digital Payments Bill, Opening Door for UPI Charges

The Lok Sabha has approved a significant amendment to the Payment and Settlement Systems Act, 2007, allowing the Centre to authorize banks and payment service providers to impose charges on Unified Payments Interface (UPI) transactions and other electronic payment methods designated by the government. This amendment, which passed through a voice vote amid disruptions in the House, eliminates the existing legal barrier preventing banks and payment system providers from collecting Merchant Discount Rate (MDR) on specified digital payment methods.

Details of the Amendment

This legislative change is part of the broader Taxation and Other Laws (Amendment) Bill, 2026, introduced earlier this week. The bill also includes amendments to the Income Tax Act, 2025, and the Finance Act, 2026. Under the new framework, the Centre will have the authority to specify one or more electronic payment modes on which charges may be applicable, replacing the previous stipulation that specifically referred to payment methods outlined in Section 269SU of the Income Tax Act.

The amendment states, “In the Payment and Settlement Systems Act, 2007, in Section 10A, for the words, figures and letters ‘the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961’, the words ‘one or more electronic modes of payment as the central government may, by notification, specify’ shall be substituted with effect from the date of publication of this Act in the Official Gazette.”

Currently, Section 10A of the Payment and Settlement Systems Act prevents banks and payment system providers from imposing charges on notified electronic payment methods. Section 269SU of the Income Tax Act mandates that businesses with an annual turnover exceeding Rs 50 crore must offer customers specified digital payment options, including BHIM-UPI QR codes and RuPay debit cards. As it stands, neither banks nor payment system operators can levy any direct or indirect charges on these prescribed payment modes.

Implications of the Amendment

Unlike UPI, real-time fund transfer systems such as RTGS and NEFT already incur service charges. This amendment opens the door for the potential introduction of similar charges for UPI and other designated digital payment platforms if the government opts to do so in the future. The government’s objective is to create a sustainable financial model for banks, payment service providers (PSPs), and payment infrastructure companies that support India’s rapidly growing digital payments ecosystem, while ensuring that any potential charges remain reasonable for consumers and small businesses.

The issue of MDR has been a contentious topic within the banking and payments industry. Financial institutions argue that processing digital payments incurs substantial infrastructure costs, necessitating a sustainable revenue model as transaction volumes continue to rise.

RBI Governor’s Remarks on MDR

A day prior to the Bill’s passage, RBI Governor Sanjay Malhotra remarked that it would be “premature” to speculate on the introduction of MDR for digital payments. He emphasized that maintaining public digital infrastructure requires ongoing investment. He stated, “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. Right now the government is getting us the amendment. Costs have to be paid by someone. We all want this public infrastructure to strengthen and become more efficient, etc. We continue to do that. That is our focus right now; let us wait and watch for further developments.”

Malhotra also highlighted that regardless of whether MDR is implemented, the costs associated with maintaining payment infrastructure cannot be overlooked. He noted, “What is important is that we continue to invest and continue to find the means, whether it is MDR or others. Let us wait and see how the situation evolves.”

Industry participants have suggested that if MDR is ultimately introduced, it is more likely to apply only to higher-value merchant transactions rather than peer-to-peer UPI payments. However, no formal proposal has been announced, and the government has yet to clarify whether or when any charges would be implemented under the amended law.

As reported by www.timesnownews.com.

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Published on 2026-08-09 12:28:00 • By FAME Delivered News Desk