Digital Payments · Aug 2026

UPI Transaction Charges Bill 2026: What the Lok Sabha Actually Passed

Published 9 August 2026. On 6 August 2026, the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 by voice vote, three days after it was introduced. Headlines immediately warned that "free UPI" was ending — but the bill itself does not impose any charge. Here is what it actually does, and what the government has clarified since.

What the bill changes

The amendment targets Section 10A of the Payment and Settlement Systems Act, 2007. Until now, Section 10A barred banks and payment service providers from charging any fee — directly or indirectly — on payment modes notified under Section 269SU of the Income-tax Act, 1961, which covers UPI and RuPay debit cards. The new law removes that blanket prohibition and instead gives the Central Government the power to notify, at a time and in a manner of its choosing, which electronic payment modes may attract a charge.

That is the entire operative change: an enabling provision. It creates the legal mechanism for a future Merchant Discount Rate (MDR) on UPI. It does not, by itself, set a rate, a threshold, or a start date.

What the government clarified two days later

Facing public confusion, the Finance Ministry issued a clarification on 8 August 2026:

Person-to-person UPI stays free. Sending money to friends, family or splitting a bill will not attract any charge.
No blanket merchant MDR. The government said it is not considering an across-the-board fee on merchant UPI payments.
Any future MDR would be narrow. If notified at all, officials indicated it would apply only to a limited slice of high-value merchant transactions above a threshold yet to be announced, at a rate "significantly lower" than the roughly 1–2% MDR already charged on debit and credit cards.
The vast majority of merchant transactions would remain free — small retailers, street vendors and everyday QR-code payments are not the target.

Don't confuse this with the GST-on-UPI rumour

A separate, older claim — that GST is being levied on UPI transactions — has circulated periodically and was already called false and baseless by the Finance Ministry. This bill has nothing to do with GST. It is solely about whether an MDR can, in future, be charged under the Payment and Settlement Systems Act. Keep the two claims separate when you see either one repeated online.

Why the government wants this power now

UPI has run at zero MDR for merchants since 2020, a gap partly bridged by a government incentive scheme that reimburses banks and payment providers for processing costs. Officials have framed the amendment as a step toward the "long-term sustainability, technological development and resilience" of the UPI ecosystem — giving the government flexibility for a future funding model without committing to one now.

What to actually do right now

Nothing changes today. Consumers do not need to switch payment methods, and small merchants do not need to budget for a new fee. The one group worth paying attention going forward is high-ticket merchants — if a threshold and rate are eventually notified, they would be the first affected. Everyone else can treat this as a bill to watch, not an action to take.

Sources

Note: This is a summary for guidance based on reporting and the government's public clarification as of 9 August 2026. No MDR notification had been issued at the time of writing — check the Ministry of Finance and RBI for any subsequent announcement before making business decisions.

Frequently Asked Questions

Will I have to pay to send money to friends and family via UPI?

No. The Finance Ministry confirmed on 8 August 2026 that person-to-person (P2P) UPI transfers will continue to remain free. The bill only creates the legal power to charge on specific notified payment categories — P2P transfers are not expected to be among them.

What did the Lok Sabha actually pass on 6 August 2026?

The Taxation and Other Laws (Amendment) Bill, 2026, which amends Section 10A of the Payment and Settlement Systems Act, 2007. It lets the Central Government notify which electronic payment modes banks and payment providers may charge for. The bill itself does not fix any fee.

Does this bill introduce GST on UPI transactions?

No — these are two separate, unrelated claims that often get conflated. Reports of GST being levied on UPI transactions have already been called false and baseless by the Finance Ministry. This bill is about a possible future Merchant Discount Rate (MDR), not GST.

Which merchants could eventually be charged?

If the government uses this new power, officials have indicated any MDR would likely apply only to a limited set of high-value merchant transactions above a threshold that hasn't been announced yet, at a rate expected to be well below card MDR. The government has said the vast majority of merchant UPI transactions would remain free.

When will any UPI charge actually start?

There is no start date, because none has been set. The bill only creates the mechanism; an actual charge needs a separate government notification specifying the rate and the transaction threshold, and none had been issued as of 9 August 2026.

How is this different from debit or credit card MDR?

Card payments have carried an MDR of roughly 1-2% for years. UPI has had zero MDR since 2020, partly funded through a government incentive scheme for banks. This bill only opens the door to a UPI MDR framework — if it is ever notified, it is expected to be markedly lower than card rates and limited to high-value merchants.