UPI Charges Update: The Lok Sabha has passed an important amendment to the Payment and Settlement Systems (PSS) Act, 2007, giving the Central Government the authority to notify charges on UPI and other digital payment modes in the future. While this does not mean UPI transactions will immediately become chargeable, the amendment creates the legal framework for the government to introduce fees, such as the Merchant Discount Rate (MDR), if it decides to do so later.
The amendment is part of the Taxation and Other Laws (Amendment) Bill, 2026, which also includes changes to the Income Tax Act, 2025, and the Finance Act, 2026.
What Has Changed?
The newly approved amendment modifies Section 10A of the Payment and Settlement Systems Act.
Earlier, the law specifically prohibited banks and payment service providers from levying charges on digital payment methods notified under Section 269SU of the Income Tax Act.
With the amendment, this provision has been broadened. Instead of referring only to payment modes listed under the Income Tax Act, the Centre can now notify any electronic payment method on which charges may apply through an official government notification.
This gives the government greater flexibility in deciding which digital payment systems could attract fees in the future.
Does This Mean UPI Will Become Chargeable?
Not immediately.
The amendment only provides the legal authority to introduce charges if the government chooses to do so. As of now, UPI payments remain free for users, and the government has not announced any timeline or decision regarding the implementation of charges.
In other words, there is no immediate change for consumers or businesses using UPI.
What Is Merchant Discount Rate (MDR)?
Merchant Discount Rate, commonly known as MDR, is the fee merchants pay to banks and payment service providers whenever customers make digital payments.
Currently:
- Credit card transactions generally attract MDR.
- Debit card transactions may also involve MDR in certain cases.
- UPI and RuPay debit card payments have remained MDR-free since January 2020, following a government decision aimed at accelerating digital payment adoption across India.
The absence of MDR has played a significant role in making UPI the country’s most widely used digital payment platform.
Why Is the Government Considering This Change?
India’s digital payment ecosystem has expanded rapidly, with billions of UPI transactions processed every month.
Although UPI remains free for users, operating the system involves substantial expenses, including:
- Payment infrastructure maintenance
- Cybersecurity
- Fraud prevention
- Technology upgrades
- Settlement systems
- Customer support
Banks and payment companies have repeatedly argued that the current zero-MDR model makes it difficult to recover these operational costs and sustain future investments.
The proposed amendment is intended to provide flexibility in creating a more sustainable financial model for the growing digital payments ecosystem.
How Does the Current Law Work?
At present, Section 269SU of the Income Tax Act requires businesses with an annual turnover exceeding ₹50 crore to offer customers specified digital payment options, including:
- BHIM-UPI QR Codes
- RuPay Debit Cards
Simultaneously, Section 10A of the Payment and Settlement Systems Act prevents banks and payment service providers from charging merchants for these notified payment methods.
The latest amendment removes this blanket restriction by allowing the government to specify payment modes that could potentially attract charges in the future.
Why Is This Amendment Important?
Unlike UPI, other electronic fund transfer systems such as NEFT and RTGS already involve service charges in many cases.
The amendment opens the possibility of adopting a similar fee structure for certain digital payment modes if the government considers it necessary.
However, any such decision would require a separate government notification and has not yet been announced.
RBI Governor Calls for Patience
Before the Bill was passed, RBI Governor Sanjay Malhotra urged caution, saying it would be premature to speculate about the return of MDR on UPI transactions.
He noted that maintaining India’s digital payment infrastructure requires continuous investment and explained that someone ultimately has to bear those costs.
According to the RBI Governor, the options are broadly limited to:
- Government funding through taxpayer money, or
- A “user pays” model such as Merchant Discount Rate (MDR).
Malhotra also stressed that strengthening the country’s payment infrastructure remains the RBI’s priority and said it would be better to wait for the government’s final decision before drawing conclusions.
Could Only High-Value Transactions Be Charged?
Industry experts believe that if MDR is eventually introduced, it is more likely to apply to high-value merchant transactions rather than everyday UPI payments between individuals.
Peer-to-peer (P2P) transfers are widely expected to remain free, while larger commercial transactions could potentially attract nominal charges.
However, it is important to note that no official proposal has been notified, and the government has not announced whether, when, or on which transactions any charges would apply.
What Should UPI Users Know Right Now?
For now, nothing changes for consumers.
UPI continues to be free for everyday transactions, and the amendment simply empowers the government to introduce charges in the future if required. Any such move would require a separate notification detailing the payment modes, transaction categories and applicable charges.
Until then, users and merchants can continue using UPI as usual while keeping an eye on future policy announcements regarding India’s evolving digital payments framework.