Lok Sabha Passes Bill Allowing Charges on UPI Transactions Under Payment Act Amendment 2026
Shocking Blow: Banks Can Now Charge Fees on UPI Transactions
New Delhi: The Lok Sabha on Friday passed a key amendment allowing banks and payment service providers to levy charges on UPI transactions and other notified electronic payment modes, ending the long-standing zero-MDR regime for Unified Payments Interface payments.
Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to amend the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026. The Bill was cleared by voice vote after the House reassembled at 2 pm following an earlier adjournment.
The amendment removes the legal provision that barred banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes. While real-time payments through RTGS and NEFT already attract service charges, UPI transactions had remained exempt until now.
The government’s approach aims to introduce a small charge on digital payment services for consumers and small businesses while creating a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that power India’s digital payments ecosystem.
Officials indicated the move forms part of broader taxation legislation introduced earlier in the week. The changes are expected to support the long-term viability of the UPI network, which has seen explosive growth but faced concerns over the absence of a clear monetisation framework for the entities operating the system.
The Bill now awaits further legislative process. Stakeholders in the banking and fintech sectors are closely watching the notification of specific electronic payment modes and the eventual structure of any permitted charges on UPI transactions.
