The Unified Payments Interface (UPI) may no longer remain completely insulated from transaction charges, after the Lok Sabha passed a Bill that gives the Centre the power to permit fees on UPI and other notified digital payment modes.
However, there is an important distinction. The Bill does not impose any UPI charge immediately, nor does it specify a fee or Merchant Discount Rate (MDR). Instead, it changes the legal framework so that the government can later notify the electronic payment modes on which banks and payment service providers may levy charges.
The provision is part of the Taxation and Other Laws (Amendment) Bill, 2026, which was passed by the Lok Sabha on Thursday. The legislation also seeks to amend the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025 and the Finance Act, 2026.
The Bill was passed by voice vote after the House resumed at 2 pm. The passage came amid disruptions and Opposition sloganeering during the ongoing Monsoon Session of Parliament.
At the centre of the controversy is Section 10A of the Payment and Settlement Systems Act, 2007. The existing provision prevents banks and payment system providers from directly or indirectly imposing charges on specified electronic payment modes. The amendment replaces the existing reference with a provision allowing the Central Government to specify one or more electronic payment modes through notification.
In simple terms, the change gives the government greater flexibility to decide whether and where charges can be introduced in the digital payments ecosystem.
UPI has so far operated under a zero-charge framework for users, making it one of the easiest ways for Indians to transfer money or pay merchants. Unlike UPI, some other electronic payment systems already have service charges. RTGS and NEFT, for instance, can attract fees, while UPI has remained exempt from such charges.
The government has argued that the change could help create a more sustainable financial model for the country’s rapidly expanding digital payments infrastructure. Banks, payment service providers and other companies involved in maintaining payment networks face significant costs as transaction volumes continue to rise.
The proposed framework could eventually allow these ecosystem players to recover part of those costs through regulated charges. The government has indicated that any future charges would need to be introduced through a separate notification, meaning the Bill itself does not decide who will pay, how much they will pay or which transactions will attract a fee.
That uncertainty is also what has triggered concern among consumers and small businesses.
For millions of Indians, UPI has become an everyday payment tool — from buying groceries and paying an auto-rickshaw driver to settling restaurant bills and transferring money to family members. Even a small transaction fee could potentially change how consumers and merchants use digital payments, particularly for low-value transactions.
Small retailers could also be affected if Merchant Discount Rate (MDR) is introduced on certain merchant transactions. MDR is a fee associated with processing digital payments and can influence the cost of accepting electronic payments for businesses.
At present, however, there is no fixed MDR or UPI transaction fee announced under the Bill. The government would have to take further action before any such charge comes into effect.
The development comes as UPI continues to expand at an extraordinary pace. Since its launch in 2016, the platform has become the backbone of India’s retail digital payments ecosystem, handling transactions across banks, merchants, government services and person-to-person payments. Data cited in recent analysis shows UPI crossed 140 billion transactions in FY 2025-26, with transaction value exceeding ₹200 lakh crore.
The debate, therefore, is not simply about whether people will eventually have to pay for UPI. It is also about how India can finance and strengthen the infrastructure behind its digital payments revolution without making digital transactions less accessible.
RBI Governor Sanjay Malhotra had said on Wednesday that it was premature to discuss Merchant Discount Rate on digital payments. He also noted that investment in public payment infrastructure was necessary and that someone would ultimately have to bear the cost.
The government’s next move will determine how the new provision affects India’s digital payments ecosystem. Any UPI charge would require a separate notification, leaving the structure, rate and transactions covered to be decided later. Until then, the Bill only creates the legal possibility of introducing such fees.
