India's Lok Sabha Passes Bill Enabling Merchant Fees on UPI Transactions

Parliament's lower house approved enabling legislation that could end India's six-year ban on charging merchants for UPI acceptance, though the Reserve Bank of India considers MDR discussions premature.

India's Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 on August 6 via voice vote. The bill amends Section 10A of the Payment and Settlement Systems Act, 2007. The amendment replaces the blanket prohibition on merchant discount rates with a notification framework under which the central government can specify which electronic payment modes remain exempt from charges.

The bill does not immediately impose fees on UPI transactions. RBI Governor Sanjay Malhotra has indicated that discussions on the structure of a potential UPI MDR remain premature. Industry analysts estimate that if implemented, an MDR of 0.2 to 0.4 percent could apply to merchant transactions exceeding Rs 2,000. Person-to-person transfers would remain free under the proposed framework.

Transactions above Rs 2,000 represent approximately 5 percent of UPI volume but 65 percent of value. UPI processed a record 23.66 billion transactions worth Rs 29.88 lakh crore in July 2026. Merchant discount rates on UPI have been prohibited since the Finance Act, 2020.