Law Amendment Enables Charges on UPI Transactions

Context: The government has amended the Payment and Settlement Systems Act through the Taxation and Other Laws (Amendment) Bill, 2026, enabling it to notify charges on UPI transactions that were earlier exempt. While no official charge has been announced, sources suggest it may initially apply only to large merchants for transactions above a threshold value.

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Law Amendment Enables Charges on UPI Transactions

Context

UPI and RuPay debit card transactions have been charge-free by law. A recent amendment now empowers the government to notify categories of digital transactions that can attract a charge, reopening the debate on UPI's zero-MDR (Merchant Discount Rate) policy.

Key Facts

The amendment was passed via the Taxation and Other Laws (Amendment) Bill, 2026, without much debate in the Lok Sabha.

Reports suggest any charge could initially target large merchants (turnover above Rs. 1-1.5 crore) for transactions above Rs. 2,000, covering about 5% of UPI transactions.

The amended law, however, gives the government wide latitude to expand the scope later.

Concerns include merchants passing on costs to consumers, who might revert to free-to-use cash.

UPI has driven India's digital payments boom; any charge could affect its adoption trajectory.

Significance for UPSC

Relevant to GS3 topics on digital economy, financial inclusion, and government policy on fintech regulation, as well as the balance between sustaining the UPI ecosystem's incentive structure for banks and keeping digital payments affordable for small merchants and consumers.

Law Amendment Enables Charges on UPI Transactions