NEW DELHI — The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing significant amendments to the Payment and Settlement Systems Act, 2007, to authorize the central government to permit service fees on Unified Payments Interface (UPI) and other notified digital payment channels. Moved by Finance Minister Nirmala Sitharaman, the legislation passed by voice vote and alters Section 10A of the 2007 Act, removing the statutory prohibition that previously prevented financial institutions and payment service providers from levying a Merchant Discount Rate (MDR) on prescribed electronic modes.
The statutory change gives the Union government flexibility to notify specific electronic payment systems that may attract service charges, addressing a long-standing demand from commercial banks and payment infrastructure firms. Under the previous legal framework, large commercial entities with an annual turnover exceeding $₹50$ crore were mandated to accept digital payments via RuPay debit cards and BHIM-UPI QR codes without incurring processing charges. The new legislative framework aims to balance consumer accessibility with commercial viability, ensuring that any future fee structures remain focused on higher-value commercial transactions while protecting small businesses and individual consumers from additional financial burden.
Addressing the policy shift, Reserve Bank of India Governor Sanjay Malhotra stated that establishing a self-sustaining funding mechanism for digital infrastructure is essential for maintaining processing efficiency and long-term security. Noting that public digital payment networks require continuous investment, the central bank governor explained that funding must ultimately be drawn either from general tax revenues or through a structured “user pays” approach via merchant fees. While clarifying that the immediate imposition of charges remains under government review, regulatory authorities emphasized that creating a flexible legislative framework provides the necessary groundwork to support India’s expanding digital financial ecosystem.
