New Delhi (Gurpreet Singh)— The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing crucial amendments to the Payment and Settlement Systems Act, 2007. The statutory change authorises the Union government to permit commercial banks and payment service providers to levy service charges, including Merchant Discount Rate (MDR), on digital payments executed via the Unified Payments Interface (UPI) and other notified electronic payment methods. Moved by Finance Minister Nirmala Sitharaman, the legislation was passed by voice vote following a brief adjournment.
The amendment directly alters Section 10A of the Payment and Settlement Systems Act, 2007, removing the legal prohibition that previously prevented financial institutions from imposing transaction charges on prescribed electronic payment channels. Under prior provisions linked with Section 269SU of the Income Tax Act, commercial entities with annual turnovers exceeding Rs. 50 crore were mandated to accept electronic payment modes such as RuPay debit cards and BHIM-UPI QR codes without paying processing fees. The new statutory text empowers the central government to specify through official notifications which electronic modes may attract service fees in the future.
Government officials indicated that the flexible regulatory framework is designed to create a sustainable revenue model for payment service providers, banking institutions, and digital infrastructure firms without hindering overall digital adoption. While established real-time transfer systems like RTGS and NEFT have long operated under fee structures, UPI transactions have historically remained exempt from service charges. RBI Governor Sanjay Malhotra recently noted that maintaining robust, secure payment infrastructure requires dedicated funding, explaining that costs must ultimately be supported either through general taxation or structured user-pays mechanisms such as MDR.
