UPI Payments Remain Free, Bill Only Gives Government Power to Impose Merchant Fees

The passage of the Taxation and Other Laws Amendment Bill, 2026, in the Lok Sabha has sparked confusion about potential UPI charges. The Bill does not impose an immediate fee on every UPI payment. Instead, it grants the government legal authority to decide which digital payments may attract a Merchant Discount Rate (MDR) and which will remain free. No final rate or implementation date has been announced.

Finance Minister Nirmala Sitharaman clarified that any MDR would be charged to merchants—shops and businesses—rather than directly to customers. UPI transfers between individuals are not expected to attract MDR. Regular bank account payments also remain free for now. Discussions have reportedly focused on larger merchant transactions, particularly those above Rs 2,000.

RBI Governor Sanjay Malhotra noted that UPI operations require significant infrastructure investment in servers, security, and customer support. The government must decide whether these costs will be borne by itself, banks, payment companies, or merchants. While customers may not directly pay MDR, some businesses could potentially raise prices if their costs increase.