Lok Sabha Passes UPI Charges Bill on August 6, 2026

India’s Lok Sabha passed a bill on August 6, 2026 that removes the legal barrier preventing banks from charging merchants on UPI transactions. The Taxation and Other Laws (Amendment) Bill amends the Payment and Settlement Systems Act, 2007, giving the government authority to decide which digital payment modes remain free. UPI processed 23.6 billion transactions worth Rs 29.9 trillion in July 2026, making this infrastructure shift significant for India’s digital economy.

What the bill actually does

The bill passed through voice vote without debate in the Lok Sabha. It removes the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on UPI and other notified electronic payment modes. The amendment specifically modifies Section 10A of the Payment and Settlement Systems Act, 2007, allowing the central government to decide via notification which payment modes or transactions remain free. Real-time payments through RTGS and NEFT already charge service fees, but UPI has remained exempt until now.

Two charging models under consideration

Policymakers are reportedly considering two possible fee structures. Under the first model, UPI merchant payments above Rs 2,000 could attract an MDR of around 0.25 to 0.5 percent, while smaller transactions and person-to-person transfers remain free. Under the second model, charges would apply only to payments received by merchants with annual turnover exceeding Rs 1.5 crore. The bill itself neither introduces a specific MDR nor sets a fee amount. A committee headed by NPCI will decide the actual MDR only after Parliament passes the bill.

Finance Minister clarifies: merchants pay, not customers

Finance Minister Nirmala Sitharaman said on August 7 that the MDR applies only to merchants, not end users. She stated the charge will support banks and fintech companies to invest more in infrastructure, innovation, and security. Sitharaman rejected opposition claims that ordinary people would bear the cost, saying the merchant discount rate applies only on merchants. However, businesses could recover costs by raising prices or imposing convenience charges.

Why this matters for India’s digital economy

UPI has become critical national infrastructure, processing 23.6 billion transactions worth Rs 29.9 trillion in July 2026. The zero-MDR framework enabled this growth by allowing consumers, small shops, and roadside vendors to transact without charges. Banks and payment service providers have argued they need revenue to sustain infrastructure investment. The government aims to levy small charges while ensuring a sustainable revenue model for the digital payments ecosystem.

Final Thoughts

The bill gives India’s government legal authority to introduce merchant fees on UPI, ending a decade of zero-charge transactions. Actual fees remain undecided pending committee review. The shift balances infrastructure sustainability against India’s digital payment growth.

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