Lok Sabha has passed the Taxation and Other Laws Bill 2026, which proposes changes to tax regulations and payment laws aimed at improving investment conditions and strengthening digital payment infrastructure.
The bill was passed through a voice vote amid opposition protests and without a detailed discussion in the House.
One of the major changes proposed in the bill is removing the existing legal restriction that prevents banks and payment service providers from charging a Merchant Discount Rate (MDR) on certain notified electronic payment methods.
The move could allow the government to modify the current zero-MDR framework for UPI and RuPay card transactions in the future.
The bill also seeks to remove the direct linkage between the Payment and Settlement Systems Act, 2007 and the Income Tax Act, while providing legal support for possible changes in digital payment fee structures.
Who Will Pay the Possible UPI Charges?
The proposed changes are expected to apply to merchant transactions, not individual users making personal UPI payments.
According to government officials, if MDR is introduced, it could be charged on business payments above Rs 2,000, with a possible rate ranging between 0.25% and 0.4%, along with an overall limit on the maximum fee that can be collected.
Banks and fintech companies are expected to receive this fee to support investments in payment infrastructure, technology upgrades and innovation.
Officials have also stated that the proposed charges would remain lower than MDR rates applicable to traditional credit and debit card transactions.
The government has maintained that most merchants are unlikely to pass the additional cost directly to consumers, although the final impact would depend on future decisions.
Government Clarifies UPI Will Remain Free for Users
During an exchange outside Parliament, Finance Minister Nirmala Sitharaman responded to concerns raised by Congress MP Jairam Ramesh, who claimed the bill could open the possibility of MDR charges on UPI.
The Finance Minister clarified that any potential charges would apply to merchants and not regular users. She said the move would help banks and fintech firms continue investing in digital payment systems.
She also stated that the decision on MDR has not yet been taken and will be considered by the UPI and Services Steering Committee headed by NPCI after the bill receives parliamentary approval.
When Will the New UPI Fee Rules Apply?
The bill only creates a legal framework that allows changes to the MDR system. It does not immediately introduce UPI charges.
Any decision on implementing MDR for UPI or RuPay transactions will require further approval from the concerned authorities, including the NPCI-led committee and the government.
Until such a decision is officially announced, UPI payments for users will continue under the existing zero-MDR system.
The bill was introduced by Finance Minister Nirmala Sitharaman after the Lok Sabha resumed following an earlier adjournment. It proposes amendments to the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026.
