Published Aug 10, 2026 | 5:55 PM ⚊ Updated Aug 10, 2026 | 5:55 PM
The UPI logo. (Supplied)
Synopsis: The government has introduced the Taxation and Other Laws (Amendment) Bill, 2026, seeking to amend the Payment and Settlement Systems Act, 2007, which restricted charges on online payments, including UPI. Though the government argue that the move is limited to large merchant transactions, opposition parties have raised concerns regarding its implications for the ordinary user.
A decade after the demonetisation move, the Centre is now planning another financial policy that has the potential to be equally destructive to the common people. During a Parliament session marred by protests and disruptions, the Lok Sabha on August 6 passed the Taxation and Other Laws (Amendment) Bill, 2026, on a voice vote, without any discussion or debate. The Bill seeks to amend the Payment and Settlement Systems Act, 2007, to remove any restrictions for banks and payment service providers to levy charges for online payments.
This would mean banks and payment service providers can levy charges for UPI payments if the Bill becomes law. After criticism from opposition parties, the Finance Ministry issued a clarification stating that the charges would be levied only on a limited set of merchant transactions, “at a nominal rate” and “above a certain threshold.” However, the Opposition and the larger public are not convinced and are raising eyebrows regarding the implications of such a move on the ordinary citizen.
The Taxation and Other Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on August 4, seeking to replace the Income-tax (Amendment) Ordinance, 2026 issued on June 5, 2026. Along with amendments to the Income Tax Act, extending the tax exemptions granted to foreign companies to include several other entities, including firms involved in diamond mining, the Bill also proposed amendments to the Finance Act, 2026, and the Payment and Settlement Systems Act, 2007.
The Bill sought to amend Section 10A of the Act, which mandated that no Bank or system provider could impose directly or otherwise any charge upon a person using the electronic mode of payment prescribed under the Income Tax Act. This encompasses any payment made using RuPay, UPI or UPI QR Code.
The amendment proposes that the central government may be empowered to permit banks and payment service providers to levy charges on one or more electronic payment modes, as notified by the government. This also changes the existing zero Merchant Discount Rate (MDR) framework for UPI payments, launched in 2020 to accelerate digital payment growth.
The changes were introduced as the zero-MDR model was proving not sustainable, as the banks and payment service providers were required to incur costs related to infrastructure and transaction processing.
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After the Bill was passed in LS on August 6, Congress leader Jairam Ramesh, in a post on X, claimed that the move will adversely affect ordinary citizens using the UPI payment method.
The Bill “paves the way for imposing a merchant discount rate (MDR), which could easily be applied in the future to all types of digital payments. The burden of this will ultimately fall on ordinary people, who may now have to pay even for using UPI,” he wrote.
He also questioned the government’s claim that the measure was intended to keep the online payment modes sustainable.
“The Reserve Bank of India (RBI) has sufficient capacity to maintain the UPI system on a financially sustainable basis without imposing any additional fees on merchants or consumers. In 2025-26, the RBI had transferred a surplus of ₹2.86 lakh crore to the Modi government. Just a small portion of this amount would be enough to support this vital digital public infrastructure,” he wrote.
He alleged that the reason behind such a Bill was pressure from the US government as free UPI payments in India have dulled the business of American companies like Visa and MasterCard.
“This step has been taken following the U.S. Trade Representative’s 2026 report, which criticized the fee-free nature of UPI and RuPay and accused them of driving American payment platforms like Visa and MasterCard out of the market. Is the Modi government, under pressure from its good friend Donald Trump, seeking to weaken UPI and open up the digital payments sector to American companies?” he alleged.
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Amid the backlash, the Finance Ministry on August 8 issued a statement, clarifying that all person-to-person UPI transactions will continue to be free of charge.
It explained that the MDR will be availed from a limited set of merchant transactions above a certain threshold.
“It would be far lower than debit or credit card MDRs,” the statement said. Reportedly, credit cards face an MDR of 1-3% of transaction value while debit cards face an MDR of 0.9%.
The Finance Ministry said the amendment to the taxation Bill has been misinterpreted “as a move to impose charges on ordinary users,” and stated that the move was necessary to expand UPI further into rural and semi-urban areas and maintain competitiveness.
“Reliance on subsidies alone is not viable for the next wave of growth. A balanced framework is required to ensure that UPI remains robust, inclusive, and future-ready,” the statement read.
In a response to Congress leader Jairam Ramesh’s post, Union Finance Minister Nirmala Sitharaman stated that the UPI and Services Steering Committee headed by National Payments Corporation of India (NPCI) is yet to decide on the MDR and it will happen only after the Bill is passed by Parliament. She also stressed that the MDR applies only on the merchants and not on the end users/customers while also claiming that the move would support the Banks & Fintech to invest more on infrastructure, innovation & security. “All users of UPI will reap the benefits of this investment.”
However, the move still raises concerns, including that the merchants could directly or indirectly pass on charges to the consumers if they have to pay for using online transactions.
(Edited by Fayisa CA)
