New Delhi: The Lok Sabha on Thursday passed a bill to amend the Payment and Settlement Systems Act, 2007, empowering the government to permit banks and other payment service providers to levy charges on transactions made through UPI and other notified electronic payment modes. The amendment removes the current legal bar that prevents banks and payment system providers from charging a Merchant Discount Rate (MDR) on specified electronic payment modes.
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The bill substitutes the reference to “prescribed electronic modes under section 269SU of the Income-tax Act” with a broader provision allowing the Centre to notify which electronic payment modes may attract charges. The legislation does not itself impose a fee; it creates an enabling framework for the government to decide which transactions, if any, will carry charges.
India must not rewrite its UPI policies under US pressure, and it must defend competition, policy autonomy and the long-term sustainability of its payments ecosystem, think tank GTRI said reacting to the passage of the bill. GTRI said that at present, banks and payment-system providers cannot directly or indirectly charge users for prescribed payment methods, including UPI and RuPay debit cards. It said that zero MDR contributed significantly to this growth by allowing consumers, small shops and roadside vendors to make and receive payments without transaction charges.
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While celebrating UPI’s success, GTRI acknowledged that banks, the National Payments Corporation of India (NPCI), and payment companies must continually invest in cybersecurity, fraud prevention, server capacity, dispute resolution, and system expansion. A sustainable funding model may therefore be necessary to support these ongoing costs. However, GTRI stressed that financing the system does not automatically require imposing a general merchant charge across all UPI transactions.
GTRI outlined several options to fund the ecosystem without diluting the zero-fee advantage for small merchants:
Targeted budgetary support or government incentives for critical infrastructure and security upgrades.
Charges limited to large commercial transactions rather than everyday small-value payments.
Cross-subsidisation from other financial services offered by banks and payment firms.
Narrowly designed fees applicable only to high-turnover merchants, for example those with annual turnover above a specified threshold.
GTRI said the legislative change comes against the backdrop of US criticism of domestic digital payment systems. The US Trade Representative’s 2026 National Trade Estimate Report on Foreign Trade Barriers flagged both Brazil’s Pix and India’s UPI and RuPay frameworks as trade concerns. “India must not rewrite its UPI policies under US pressure. It must defend competition, policy autonomy and the long-term sustainability of its payments ecosystem,” GTRI founder Ajay Srivastava said.
GTRI urged that any decision on charges should be driven by the cost of running UPI and the need to ensure its long-term viability, not by external trade pressure or to protect the profits of foreign card networks such as Visa and Mastercard.
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