Lok Sabha has passed a Bill to amend the Payment and Settlement Systems Act, 2007. With this, the government will have the authority to permit banks and other service providers to levy charges on payments through the unified payments interface (UPI) and other notified electronic payment modes. The amendment seeks to remove the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes. It is important to note that the passage of the bill does not automatically introduce charges on UPI transactions.
Will it have an impact on merchants or consumers?
Finance Minister Nirmala Sitharaman has stated that the Merchant Discount Rate on digital transactions applies to merchants, not customers. She also said that the MDR charge would support banks and fintech to invest more in infrastructure and security.
She said this in a post on X while replying to Congress leader Jairam Ramesh’s remark that ordinary people may have to pay more for using UPI. , Sitharaman said the UPI and Services Steering Committee headed by NPCI is yet to decide on the MDR, which would happen only after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.
Replying to Ramesh, Sitharaman said, “Before spreading a canard, @Jairam_Ramesh ji, please consider this: Merchant Discount Rate (MDR) applies only on the merchants and not on the end users/customers. It will support the Banks & Fintech to invest more on infrastructure, innovation & security. All users of UPI will reap the benefits of this investment.”
Sitharaman also said that a committee will decide on the MDR only after Parliament passes the Taxation and other laws (amendment) Bill.
Charges already applicable on RTGS, NEFT
Real-time payments made through RTGS (Real-Time Gross Settlement) and NEFT (National Electronic Funds Transfer) are already done by paying a service charge. However, UPI transactions have been exempted from such charges so far.
As of date, no bank or payment system provider may impose any charge on anyone, directly or indirectly, for using the electronic modes of payment prescribed under Section 269SU of the Income Tax Act, 1961.
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