New Delhi: Lok Sabha on Thursday, August 6, passed a Bill to amend the Payment and Settlement Systems Act, 2007, that authorises the government to permit banks and other service providers to levy charges on payments through unified payments interface (UPI) and other notified electronic payment modes.
The amendment seeks to remove the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes.
Real-time payments made through RTGS and NEFT are done by paying a service charge. However, UPI transactions have been exempted from such charges so far.
The proposed changes in the Payment and Settlement Systems Act are a part of comprehensive legislation on taxation, which was introduced in the House on Tuesday.
Bill passed through voice vote, no discussion
The Bill was passed through a voice vote in the Lok Sabha sans discussion after the House resumed at 2 pm.
As soon as the House re-assembled, Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, further to amend the Payment and Settlement Systems Act, 2007 and the Income Tax Act, 2025, and to amend the Finance Act, 2026, to be taken into consideration.
The government’s approach aims to levy a small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that drive the digital payments ecosystem.
“In the Payment and Settlement Systems Act, 2007, in Section 10A, for the words, figures and letters ‘the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961’, the words ‘one or more electronic modes of payment as the central government may, by notification, specify’ shall be substituted with effect from the date of publication of this Act in the Official Gazette,” the Bill said.
Section 10A of the Payment and Settlement Systems Act, 2007 prohibits banks and system providers from imposing any charges on electronic payments, while Section 269SU of the Income Tax Act requires large businesses with a turnover exceeding Rs 50 crore to accept payments through specific electronic modes, including RuPay debit cards and BHIM-UPI QR codes.
Won’t affect daily small purchases
If the Bill becomes an Act, all banks and payment service providers can levy a charge of 0.25 to 0.4 per cent as merchant discount rate (MDR) on UPI payments above Rs 2,000 made to businesses, while keeping person-to-person transactions out of its scope, officials said.
The Bill seeks to remove the existing bar on banks and payment service providers from levying MDR on notified electronic payment modes. Officials, however, told the Times of India that no decision has been taken on when the proposal will be implemented.
Official estimates show that the Rs 2,000 threshold will cover only five per cent of all UPI transactions by volume, though those transactions account for 65 per cent of the total transaction value. The move is unlikely to affect daily purchases such as milk, vegetables and groceries or payments for auto and taxi rides.
Someone will have to pay: RBI Governor
Speaking on the issue, RBI Governor Sanjay Malhotra on Wednesday (August 5) said it is “premature” to talk about MDR on payment through digital means.
Investment in public infrastructure like payments is necessary, he said, reiterating that someone will have to pay for it.
“The choices before us are simple: either the general public has to pay for it through taxes, or we have to levy the merchant discount rate (MDR), following the ‘user pays’ model.
“Right now the government is getting us the amendment. Costs have to be paid by someone. We all want this public infrastructure to strengthen and become more efficient, etc. We continue to do that. That is our focus right now; let us wait and watch for further developments,” Malhotra said.
Levy of MDR has become a vexed issue in the country as bankers and other stakeholders in the payment industry have been pressing for it, and the government has so far not moved in the matter, and the usage of digital payments like the UPI platform has continued to grow at a handsome pace.
Some watchers have been expecting MDR to set in for UPI transactions above a certain value between a merchant and customer, and not in the case of peer-to-peer payments.
The important aspect is that someone has to pay for the service, the RBI Governor said.
Malhotra said under the ‘use-pays’ principle, it is the person or the merchant who is transacting who gets charged through the levy of MDR, but added that even if there is no MDR in place, the general public pays for it through the taxes.
“What is important is that we continue to invest and continue to find the means, whether it is MDR or others. Let us wait and see how the situation evolves,” he said.
Is PM under pressure from ‘good friend Trump’? Congress
The Congress attacked the government over the Taxation and Other Laws (Amendment) Bill, asking whether Prime Minister Narendra Modi is seeking to dilute UPI and open the digital payments sector to American businesses “under pressure” from his “good friend Donald Trump”.
Congress general secretary Jairam Ramesh said the Modi government’s latest bill removes the statutory guarantee that keeps UPI transactions free.
It opens the door to Merchant Discount Rate (MDR) charges, which can easily be expanded to all payments in the future, Ramesh said on X.
The cost will inevitably be borne by ordinary people who will now have to pay to use UPI transactions, he said.
“The Modi Government’s claim that this is the only route to keep UPI financially sustainable is a lie. The RBI has the financial capacity to sustainably fund the UPI ecosystem without imposing charges on merchants or consumers,” Ramesh said.
In 2025-26, the RBI transferred Rs 2.86 lakh crore to the Modi government, he said.
It would take only a small fraction of this surplus transfer to support this critical digital public infrastructure, Ramesh said.
“Is the Prime Minister seeking to dilute UPI and open the digital payments sector to American businesses under pressure from his good friend (US President) Donald Trump,” the Congress general secretary asked.
It wouldn’t be the first time, he added.
Trump has openly claimed at least 100 plus times that he pressured the Modi government into calling an abrupt ceasefire to Operation Sindoor using the threat of American tariffs, Ramesh said.
The US has also claimed that India’s gradual tapering down of oil imports from Russia has been prompted by Trump’s diktats, he said.
“We also know that the Modi Government capitulated to President Trump’s bullying and accepted a grossly unfair Indo-US trade deal which sacrifices the interests of our farmers and small businesses in particular,” he said.
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