India’s lower house has approved a law enabling the government to impose charges on certain digital transactions, signalling potential changes to the country’s largely free UPI system amidst ongoing debates over its funding model.
India’s lower house on Thursday approved legislation that clears the way for the government to allow charges on some digital payment transactions, including Unified Payments Interface transfers, although no fee will be introduced automatically. The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 by voice vote after an earlier adjournment, with Finance Minister Nirmala Sitharaman moving the measure as part of a broader package of amendments to tax and payments laws.
The change centres on Section 10A of the Payment and Settlement Systems Act, 2007, which currently blocks banks and payment service providers from levying direct or indirect charges on notified electronic payment methods. By replacing that wording with language allowing the central government to specify payment modes through notification, the bill removes the legal barrier that has kept UPI free of merchant discount rate charges, or MDR, since 2020. Industry sources and reports in Indian financial media say any future fee would likely be modest, potentially below 0.5%, and could be aimed at large merchants while leaving smaller businesses and peer-to-peer transfers untouched.
The government argues the move is about funding the infrastructure behind India’s fast-growing digital payments network. RBI Governor Sanjay Malhotra said on Wednesday that payment infrastructure has to be paid for somehow, framing the issue as a choice between taxpayer funding and a “user pays” model through MDR. His comments reflected a long-running policy debate in India, where banks and payments firms have pressed for a durable revenue stream while successive governments have promoted low-cost digital payments to encourage financial inclusion and reduce reliance on cash.
For now, the bill changes the law rather than the price at the till. UPI remains free unless and until the government issues a separate notification authorising charges, but the passage of the amendment signals that New Delhi wants the option to revive merchant fees if it decides the payments ecosystem needs a new funding model.
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