FINANCE

Parliament Passes Bill Allowing Future UPI Merchant Charges, No Immediate Fees for Users

The Lok Sabha approved an amendment to the Payment and Settlement Systems Act that removes the ban on Merchant Discount Rates for UPI, giving the government legal room to impose charges later. Finance Minister Nirmala Sitharaman assured that consumer‑to‑consumer UPI payments will stay free, while merchants brace for possible fees.

By Open Vaartha Desk · 2026-08-06

TL;DR

India’s parliament cleared a bill that lets the government charge merchants for UPI in the future, but consumer transactions stay free for now.

Key points

The amendment removes the legal ban on Merchant Discount Rates for UPI and other notified digital payment systems.
Finance Minister Nirmala Sitharaman said consumer‑to‑consumer UPI payments will remain free.
The change gives the Centre authority to introduce, modify, or waive MDR through a future notification.
Merchant groups fear future fees could cut margins and push small retailers back to cash.
Opposition parties worry the amendment could eventually end free digital payments, a claim the government denies.

The lower house of India’s Parliament has cleared a pivotal amendment to the Payment and Settlement Systems Act, 2007, that could reshape the cost structure of the country’s flagship digital payments system, the Unified Payments Interface (UPI). The change eliminates the statutory prohibition on levying a Merchant Discount Rate (MDR) on "notified digital payment systems" such as UPI.What the amendment does<ul><li>Removes the existing legal barrier that prevented the government from imposing, modifying, or waiving MDR on digital payment methods that have been officially notified.</li><li>Does not itself introduce any new fee; instead, it creates a framework that allows the Centre to issue a separate notification in the future if it decides to permit charges.</li></ul>Impact on consumers Finance Minister Nirmala Sitharaman told Parliament that ordinary users will continue to enjoy free UPI transactions. She emphasized that any future charges would be limited to merchant transactions and would not affect person‑to‑person payments between individuals. The exact design of any such charge, should it be introduced, remains undecided.Why the government is acting India’s digital payments ecosystem has expanded dramatically, with UPI processing billions of transactions each month, making it one of the world’s largest real‑time payment networks. While consumers benefit from zero‑cost transactions, banks and payment service providers shoulder substantial infrastructure, cybersecurity, and operational expenses. Industry bodies and banks have long argued that the absence of MDR hampers sustainable investment in payment infrastructure. By granting legal flexibility, the amendment aims to balance innovation, financial sustainability, and consumer interests.Merchant concerns Merchant associations warn that any future MDR could erode the margins of small businesses that adopted UPI precisely because of its zero‑cost model. Some experts caution that higher transaction costs might push a segment of retailers back toward cash, especially among micro‑enterprises.Opposition criticism Opposition leaders have questioned whether the amendment signals an eventual end to free digital payments, arguing that once the legal barrier is removed, the government could introduce fees at its discretion. The ruling party rejected this view, stating that the Bill merely provides legal flexibility and does not constitute an immediate decision to levy fees.The bigger picture India’s digital payments revolution has been built on a promise of fast, seamless, and largely free transactions—a promise that helped UPI become a global success story across vendors of all sizes. The current amendment does not alter that reality today; UPI remains free for consumers. However, it opens the door for future policy shifts. Whether the government ultimately adopts merchant charges, retains the zero‑MDR regime, or opts for a hybrid model will depend on consultations with banks, payment companies, merchants, and regulators. The core challenge ahead is to keep digital payments affordable for users while ensuring the long‑term sustainability of the payment ecosystem as the digital economy expands.