Will You Pay For UPI Now? Here’s What The New Bill Actually Changes

Lok Sabha on Thursday, August 6, passed the Taxation and Other Laws (Amendment) Bill, 2026, which could allow the government to permit charges on UPI and other specified digital payment methods in the future.

However, UPI payments will not become chargeable immediately. The Bill does not introduce any UPI fee or set a Merchant Discount Rate (MDR).

Instead, it gives the Central Government the power to decide later whether banks and payment service providers can charge MDR on certain digital payment modes, including UPI.

The Bill amends the Payment and Settlement Systems Act, 2007, by removing an existing legal restriction on charging for certain electronic payment modes.

The Bill was passed by a voice vote after Opposition members raised slogans in the House. Finance Minister Nirmala Sitharaman introduced the legislation after the Lok Sabha resumed at 2 p.m.

What Does The UPI Amendment Mean?

The main change is related to Section 10A of the Payment and Settlement Systems Act.

At present, this provision prevents banks and payment system providers from directly or indirectly charging fees on certain electronic payment modes covered under Section 269SU of the Income Tax Act, 1961.

The amendment changes this rule. It allows the Central Government to notify which electronic payment modes will continue to remain under the no-charge restriction.

The Bill removes the legal barrier that has prevented charges on UPI and certain other digital payments. The government can later decide whether to allow such charges, which transactions they will apply to and under what conditions.

UPI Is Not Becoming Paid Immediately

Passing the Bill does not mean users will start paying for UPI from now.

The government has not announced any MDR rate or said that consumers will have to pay a fee for making UPI payments.

MDR is a fee linked to the processing of digital payments and is generally paid by merchants rather than directly by customers.

A possible MDR of around 0.3% to 0.5% on UPI transactions above Rs 2,000 has been discussed for merchants above a certain annual turnover. However, this is still under consideration and is not part of the law passed by the Lok Sabha.

Why Is MDR Back In Focus?

MDR has become a major issue as UPI has grown into one of India's most widely used payment systems.

While merchants currently do not pay MDR on UPI transactions, banks, payment companies and other infrastructure providers still spend money to operate, secure and maintain the payment network.

RBI Governor Sanjay Malhotra said on August 5 that it was too early to discuss the exact structure of MDR. He also pointed out that maintaining and investing in payment infrastructure comes at a cost.

The current zero-MDR system has also limited the direct revenue that banks and payment companies can earn from UPI transactions. This has raised questions about how the system can remain financially sustainable as transaction volumes continue to grow.

Will Small UPI Payments Be Affected?

That will depend on the rules the government decides later.

If any MDR is limited to higher-value transactions or larger merchants, everyday low-value UPI payments may continue without much impact.

The government has not yet announced the final MDR rate, transaction threshold or date for implementation.

So, users should not assume that they will have to pay a fee for UPI payments simply because the Lok Sabha has passed the amendment.

What Else Is In The Taxation Bill?

The UPI provision is only one part of the Taxation and Other Laws (Amendment) Bill.

The legislation also includes measures aimed at attracting global investment and supporting electronics manufacturing and digital infrastructure in India.

One proposal extends an income-tax exemption until 2040-41 for foreign companies that use contract manufacturers in India to produce specified electronic products. These include mobile phones, laptops, personal computers, tablets and servers, along with certain components and accessories.

The Bill also proposes tax support for foreign companies that keep components in customs warehouses before supplying them to Indian contract manufacturers.

For the cloud sector, the legislation proposes changes to certain approval and notification requirements for foreign companies operating through Indian data centres. It also allows data-centre operations to be carried out on a leased basis under the proposed framework.

What Happens Next?

The Lok Sabha's approval is an important step, but it does not mean UPI charges have been introduced.

The Bill still has to complete the remaining parliamentary process and receive the President's assent before it becomes law.

After that, the government can notify the digital payment modes covered by the new rules and decide whether MDR can be charged.

For users, UPI remains free for now. The main change is that the government is seeking to remove the legal restriction that has prevented charges on certain digital payments.

The next decisions will determine whether MDR is introduced, which merchants and transactions it covers, how much the charge will be and whether businesses pass any additional cost on to customers.