The Indian Parliament has approved legislation potentially ending the zero-fee model for UPI transactions, allowing banks and payment providers to levy charges and signalling a significant transformation in digital payment infrastructure.
India’s Lok Sabha has passed a bill that could eventually end the country’s long-standing zero-fee model for some digital payments, giving the government power to allow banks and payment firms to levy charges on unified payments interface transactions and other notified electronic payment modes. The measure, passed on August 6 by voice vote amid Opposition protest, amends the Payment and Settlement Systems Act, 2007 and separates it from tax law in a way that would let ministers change the current framework without another full legislative overhaul.
At present, consumers generally pay nothing for UPI transfers, a feature that has helped make the system one of the world’s most widely used digital payment platforms. Reuters-style reporting from PTI said the bill does not itself impose a merchant discount rate, the fee charged on card and payment transactions, but it creates the legal basis for the government to notify when charges could apply. The move marks a possible shift from a regime in which banks and payment providers cannot directly or indirectly levy such charges on UPI and RuPay debit card transactions.
The proposal comes at a time when some banks have already started charging merchants on a narrower set of UPI-linked payments. Canara Bank said in a circular that merchant discount rate charges began on June 1, 2026 for RuPay credit card payments made through UPI above ₹2,000, while Indian Bank introduced similar charges from May 20, 2024 for RuPay credit card transactions via UPI, with exemptions for some low-value offline merchants using static QR codes. Those steps suggest the bill could broaden a trend that has already started in parts of the banking system.
Beyond payments, the legislation is also meant to make India a more attractive base for global capital and business, according to government briefings reported by PTI. It would relax tax conditions for offshore fund managers considering relocation to India, preserve dividend tax relief for business trust investors even when operating companies move to the new tax regime, and simplify rules for data centres. The bill also extends tax incentives for foreign firms tied to electronics manufacturing and rough diamond trading, while officials and tax advisers say the changes could strengthen India’s onshore fund-management ecosystem and support more investment, jobs and infrastructure.
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