India Passes Bill Allowing Potential UPI Merchant Charges

The Parliament of India passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 10, granting the central government legal authority to modify the zero-Merchant Discount Rate (MDR) framework for RuPay and Unified Payments Interface (UPI) transactions. The legislation delinks the Payment and Settlement Systems Act from the Income Tax Act, allowing the government to determine which digital payment methods remain free and which may attract charges.

Finance Minister Nirmala Sitharaman clarified that the bill does not impose taxes or transaction charges on UPI users, asserting that the system will remain free for consumers. While she stated that no MDR framework has been finalized, she noted that the National Payments Corporation of India will evaluate whether to introduce charges for a limited set of high-value merchant transactions.

The Payments Council of India has advocated for an MDR to ensure sustained investment in cybersecurity, fraud prevention, and infrastructure. The council suggested that while consumers and small merchants should remain exempt, fees for large merchants would be commercial arrangements with service providers. Reserve Bank of India Governor Sanjay Malhotra acknowledged the need for continued investment in the real-time payments system but stated that discussions regarding a specific MDR structure are currently premature.