Payment Act Amendment Allows MDR on UPI Transactions

Gist Parliament recently passed the Taxation and Other Laws Amendment Bill, 2026 , which amends the Payment and Settlement Systems Act to allow the government to potentially notify charges on UPI transactions in the future. Previously, the law strictly barred any levies on BHIM-UPI and RuPay , ensuring they remained entirely free for users and merchants. This legislative shift has sparked a critical policy debate on whether introducing a Merchant Discount Rate MDR would derail India's financial inclusion success by pushing highly price-sensitive consumers back to cash. Background Under the unamended Section 10A of the Payment and Settlement Systems Act , the government explicitly prohibited banks and payment providers from imposing any transaction charges on BHIM-UPI and RuPay payments. A Merchant Discount Rate MDR is a fee charged to merchants by banks for processing digital payments, a mechanism traditionally used in the credit/debit card ecosystem to recover the costs of physical infrastructure like Point-of-Sale machines , network intermediaries, and credit default risks. UPI, operating on protocols developed by the National Payments Corporation of India NPCI , functions fundamentally differently from…