Lok Sabha Clears Bill On UPI Charges, Customers Will Not Pay Fees

The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, which also seeks to change the Payment and Settlement Systems Act, 2007. The proposed change gives the government the authority to allow banks and payment service providers to levy charges on transactions made through the Unified Payments Interface (UPI) and other electronic payment modes notified by the government.

This does not mean that a charge has now been introduced on UPI payments. The Union Minister of Finance, Nirmala Sitharaman, had clarified in Parliament that consumers would not have to pay for using UPI. The proposed change instead deals with the legal framework for charges on specified digital payment services.

Changes under The New Provision

The existing Payment and Settlement Systems Act prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes. The proposed change removes this restriction.

MDR is a fee linked to the processing of a digital payment. It is generally paid by a merchant to the banks, payment service providers and other entities involved in processing the transaction.

The legislation does not set an MDR rate or announce a new fee for UPI payments. If charges are introduced for any notified payment service, the government will have to specify the applicable terms through rules or notifications.

Ramifications On Digital Payments

UPI payments have so far carried no MDR for merchants. Customers also do not pay a transaction fee when they use UPI. The proposed change could provide another way for participants in the payment system to recover the cost of processing transactions.

The provision is not limited to UPI. It covers other electronic payment modes that the government may notify. This means the scope of any future charges will depend on which payment services are brought under the framework.

Banks, payment service providers and payment infrastructure companies incur costs while processing digital transactions. The proposed legal change gives the government a route to permit charges for specified services, although it does not set out any such charge at this stage.

Bill Also Covers Tax Laws

The changes to the Payment and Settlement Systems Act form part of the Taxation and Other Laws (Amendment) Bill, 2026. The legislation also proposes changes to the Income Tax Act, 2025, and the Finance Act, 2026.

For UPI users, the key point is that the passage of the Bill does not result in a new transaction fee. Any future charge will depend on a separate government notification and the terms specified for the relevant payment service.