Lok Sabha approves Bill empowering Centre to permit banks to levy UPI transaction charges

The Lok Sabha on Aug 6 passed the Taxation and Other Laws (Amendment) Bill, 2026, amending the Payment and Settlement Systems (PSS) Act, 2007, to empower the Central government to permit banks and payment system providers to levy charges on specified electronic payment modes, including Unified Payments Interface (UPI).

The legislation itself does not impose any charges but creates a legal framework under which the Centre may notify such charges in the future.

The amendment to Section 10A of the PSS Act removes the blanket statutory prohibition on levying charges for prescribed electronic payment modes.

Any future decision to permit charges would require a separate notification by the Central government specifying the payment modes or categories of transactions on which such charges may apply.

At present, banks and payment system providers cannot levy charges on prescribed digital payment modes notified under the Act, including BHIM-UPI, UPI QR code-based payments and RuPay debit card transactions.

The amendment allows the Centre to authorise charges on specified electronic payment modes through future notifications but does not automatically reintroduce the Merchant Discount Rate (MDR) or any other fee.

The Bill was passed by voice vote amid disruptions in the Lok Sabha.

The move comes as the government explores ways to create a sustainable financial model for India's rapidly expanding digital payments ecosystem.

Banks and payment service providers have long argued that the absence of MDR on UPI transactions has limited their ability to recover infrastructure, technology and operational costs associated with processing digital payments.

However, the government has not announced any decision on whether charges will be introduced or the categories of transactions that may be covered. Reserve Bank of India Governor Sanjay Malhotra had earlier said it was premature to comment on speculation surrounding the possible reintroduction of MDR, indicating that discussions were still underway.

Industry discussions have centred on the possibility of permitting MDR only on select person-to-merchant (P2M) UPI transactions, particularly those involving large merchants or high-value payments, while retaining zero MDR for person-to-person (P2P) transfers and small merchants. However, no final framework has been announced by the government.

The amendments mark a significant policy shift by providing the Centre with statutory powers to permit charges on notified electronic payment modes in the future.

Whether banks or payment service providers will be allowed to levy such charges, and on which categories of transactions, will depend on subsequent government notifications.