UPI Is Not Free Anymore? Lok Sabha Passes Bill to Allow Charges on Digital Payments

Has UPI stopped being free? Not yet. However, the Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, giving the Central government the legal authority to introduce charges on certain digital payment modes, including UPI, through a future notification. The law does not impose any fee immediately, but it has opened the door for the government to notify a Merchant Discount Rate (MDR) at a later stage.

The Bill amends Section 10A of the Payment and Settlement Systems Act, 2007. Earlier, the law prevented banks and payment system providers from imposing charges on specified electronic payment modes. Under the amended provision, the Central government can now decide, through a notification, which digital payment modes may attract charges and under what conditions. In simple terms, the Bill does not mean every UPI transaction will become chargeable. A separate government notification will be required before any fee can be introduced.

According to reports, one proposal under discussion is to levy an MDR of 0.3% to 0.5% on UPI merchant transactions above Rs 2,000 involving businesses with an annual turnover exceeding Rs 1.5 crore. Another option being considered is linking the fee to a merchant's annual turnover instead of the value of individual transactions, along with a possible cap on the maximum charge.

The proposal relates to merchant payments, including business to consumer (B2C) and business to business (B2B) transactions. There is no proposal to impose MDR on person to person (P2P) UPI transfers, meaning people sending money to family or friends through UPI are not part of the current discussions.

If an MDR is eventually introduced, eligible merchants would pay the fee rather than customers. For example, if a customer buys a Rs 10,000 mobile phone from a large electronics retailer such as Croma or Reliance Digital and pays through UPI, the transaction could potentially fall within the proposed B2C category if the final notification covers payments above Rs 2,000 to large merchants. At an MDR of 0.3% to 0.5%, the retailer could be charged between Rs 30 and Rs 50 for processing the payment.The customer would still pay Rs 10,000, while the MDR would be charged to the merchant.

The proposal could also influence how some businesses accept digital payments. Merchants handling a large number of high-value transactions may encourage customers to use cash or other payment methods to avoid additional processing costs. Such a shift could affect consumers who have become accustomed to making cashless payments through UPI. Similar merchant charges already apply to most credit and debit card transactions, while UPI has operated under a zero MDR regime since 2020.