Your UPI to Cost More? Govt Proposes Payment Act Change That Could Bring Back Merchant Charges on UPI
Summarized by AI; it may make mistakes. Check important info
Summarized by AI; it may make mistakes. Check important info
The Centre has proposed amendments to the Payment and Settlement Systems Act, 2007, which could pave the way for the return of merchant charges on UPI transactions. The amendment does not impose any fee immediately but gives the government the legal authority to levy charges on notified digital payment modes in the future.
Finance Minister Nirmala Sitharaman is set to introduce the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha on Tuesday. The Bill seeks to amend the Payment and Settlement Systems Act along with the Income-Tax Act, 2025, and the Finance Act, 2026.
What Changes Under the Proposed Law?
The amendment removes the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes.
If Parliament passes the Bill, the Centre will have the power to decide whether merchant charges should be levied, on which digital payment modes they will apply, and the categories of transactions or merchants that may attract the fee. The Bill, however, does not specify any rate or timeline.
UPI Users Will Continue to Pay Nothing
MDR is a fee paid by merchants to banks and payment service providers for processing digital payments. The proposed amendment does not suggest any charge for consumers making UPI payments. If introduced in the future, the fee would apply to merchants.
Why the Government Is Making the Change
The proposal follows recommendations by a Parliamentary Standing Committee, which said the zero-MDR model is financially unsustainable as UPI transactions continue to grow rapidly. The panel noted that banks and payment companies need a sustainable revenue model to invest in technology, cybersecurity and payment infrastructure.
The government had abolished MDR on UPI and RuPay debit card transactions in 2020 to encourage digital payments and currently provides incentives to banks and payment service providers to offset part of the processing cost.
What It Means
For now, nothing changes for UPI users or merchants. The amendment only creates the legal framework for the government to introduce merchant charges in the future if it decides to do so.
