Lok Sabha Clears Bill Enabling UPI Transaction Charges

Why in the News?

The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, amending the Payment and Settlement Systems Act, 2007 to empower the Government to permit banks and payment service providers to levy charges on UPI and other notified digital payment modes.

Key Provisions of the Amendment Bill:

•     The Lok Sabha passed amendments to the Payment and Settlement Systems Act, 2007 through the Taxation and Other Laws (Amendment) Bill, 2026.
•     The amendment authorises the Central Government to permit banks, Payment Service Providers (PSPs), and other authorised entities to levy charges on Unified Payments Interface (UPI) and other notified electronic payment systems.
•     It removes the existing legal restriction that prohibited charging Merchant Discount Rate (MDR) on specified digital payment modes.
•     The Government stated that any charges, if permitted, would be nominal, particularly for consumers and small businesses.
•     The objective is to establish a sustainable revenue model for entities maintaining India’s digital payment infrastructure.

Significance and Likely Impact

•     The amendment seeks to ensure the financial sustainability of the rapidly expanding digital payments ecosystem.
•     Banks and Payment Service Providers (PSPs) have argued that maintaining UPI infrastructure, cybersecurity, and transaction processing involves substantial operational costs.
•     Unlike UPI, electronic payment systems such as RTGS and NEFT already permit service charges under existing arrangements.
•     The Government believes that a balanced fee structure could improve long-term investment in payment infrastructure while maintaining affordability.
•     The proposal has also triggered discussions on its possible impact on digital payment adoption, financial inclusion, and cashless transactions, especially among small merchants.

 About Unified Payments Interface (UPI) :

• •     Unified Payments Interface (UPI) is an instant real-time digital payment system developed by the National Payments Corporation of India (NPCI).
•     It enables interoperable, 24×7, bank-to-bank fund transfers using a Virtual Payment Address (VPA), mobile number, or QR code.
•     UPI operates under the regulatory oversight of the Reserve Bank of India (RBI) and facilitates seamless digital payments across banks.
•     Merchant Discount Rate (MDR) is the fee paid by merchants to banks or payment service providers for processing digital transactions.
•     Key advantages of UPI include:

○      Instant fund transfer

○      Low transaction cost

○      Financial inclusion

○      Interoperability across banks

○      Support for India’s Digital Public Infrastructure (DPI) and the Digital India initiative.