Parliament Approves Bill Giving Centre Power Over UPI Transaction Fee Rules

The Lok Sabha on Thursday passed a Bill allowing the Centre to decide whether banks and payment service providers can levy charges on transactions made through the Unified Payments Interface (UPI) and other notified electronic payment modes. The amendment was cleared as part of the Taxation and Other Laws (Amendment) Bill, 2026, amid disruptions in the House and without a detailed debate. The legislation seeks to amend the Payment and Settlement Systems Act, 2007, by removing the existing restriction that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on specified electronic payment methods.

Under the proposed changes, the government will have the authority to notify which digital payment modes can attract charges. Currently, UPI transactions remain free for users, while other electronic payment systems such as Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) may involve service charges. The proposed amendment could allow the Centre to introduce a framework for charges on UPI transactions in the future. The government said the move is aimed at creating a sustainable revenue model for banks, payment service providers, and companies involved in maintaining digital payment infrastructure.

Officials said the amendment would provide flexibility in managing the rapidly expanding digital payments ecosystem while ensuring continued investment in payment networks. The Bill was passed by voice vote after the House resumed proceedings at 2 pm following an earlier adjournment. Finance Minister Nirmala Sitharaman moved the legislation for consideration, seeking amendments to the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026. The amendment specifically changes the language of Section 10A of the Payment and Settlement Systems Act. The existing reference to electronic payment modes prescribed under Section 269SU of the Income Tax Act, 1961, has been proposed to be replaced with a broader provision allowing the Central government to specify one or more electronic payment modes through notification.

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UPI has become one of India's most widely used digital payment platforms, enabling instant bank-to-bank transfers through mobile applications. The system has played a major role in expanding cashless transactions across the country, including among small businesses and individual users. The introduction of possible charges on UPI transactions could have implications for banks, merchants, and consumers, depending on how the government frames future notifications. The Centre has not yet announced whether charges will actually be introduced or what the possible structure of such charges would be.

Industry stakeholders have closely followed discussions around UPI transaction costs, as banks and payment service providers have raised concerns about the expenses involved in maintaining digital payment infrastructure. The government has so far focused on keeping UPI free to encourage wider adoption and financial inclusion. The amendment now moves forward through the parliamentary process after being passed by the Lok Sabha. Any future decision on imposing charges on UPI or other electronic payment modes will depend on government notifications issued under the amended law.

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