UPI Transactions Safe as Lok Sabha Bill Clears MDR Confusion

Finance Minister Nirmala Sitharaman said on August 7, 2026, that consumers will not face a new fee after Parliament approved legislation that could allow future merchant charges. UPI transactions remain free today.

The Lok Sabha bill passed on August 6, 2026, gives the Central Government authority to specify which electronic payment modes must remain charge-free. A separate notification would be required before any new charge could take effect.

Sitharaman said MDR applies to merchants rather than end users. She also said no decision has been taken to introduce MDR on UPI payments.

The legislation changes the legal framework. It does not create an immediate payment bill for consumers.

The concern began after reports described possible future charges on higher-value merchant payments, including transactions above ₹2,000. Those reports also cited possible rates, but no rate has been notified.

Sitharaman addressed the issue in a statement responding to public concern:

"Merchant Discount Rate (MDR) applies only on the merchants and not on the end users/customers. It will support the Banks & Fintech to invest more on infrastructure, innovation & security. All users of UPI will reap the benefits of this investment."

The UPI and Services Steering Committee, headed by NPCI, has yet to settle the structure. Sitharaman said that decision will come after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.

The amendment opens a legal route, but no fee starts automatically

The bill amends Section 10A of the Payment and Settlement Systems Act, 2007. It removes the earlier statutory requirement for a zero MDR on UPI and RuPay debit cards.

It also ends the previous reliance on Section 269SU of the Income-tax Act to identify payment modes that must remain free. Under the revised framework, the Central Government can identify those modes through a notification.

That change gives the government room to design a future system. It does not itself debit a customer or merchant.

India has maintained a zero-MDR framework for UPI and RuPay cards since 2020 to encourage digital payments. Banks and payment service providers have sought a revenue model, pointing to the cost of transaction infrastructure, cybersecurity and fraud prevention.

The proposed framework could provide banks and fintech companies with processing revenue rather than continued dependence on government subsidies. The legislation alone does not create that revenue stream.

Proposals would place any first charge on selected merchants

Reports have discussed a possible MDR of 0.25% to 0.4%, or 0.3% to 0.5%, on merchant transactions above ₹2,000. Those figures remain proposals.

The same discussions suggest that person-to-person, or P2P, transfers and payments below ₹2,000 would remain free. Small businesses are also expected to retain fee-free service under proposals aimed at preserving financial inclusion.

Possible criteria for larger merchants include turnover above ₹1.5 crore or ₹50 crore. Neither figure is a current threshold.

The proposed design would therefore target selected merchant payments rather than money sent between friends or family members. Sitharaman has said end users would not pay the charge directly.

About 5% of UPI transactions exceed ₹2,000, but those payments account for approximately 65% of total transaction value. A small share of payments therefore represents a large share of the money moving through the network.

The proposal could leave most payments outside the charge structure while concentrating any future collection on higher-value commercial transactions. The final categories would depend on the committee’s decision and a later government notification.

Payment infrastructure handled 23.6 billion transactions in July

UPI processed 23.6 billion transactions worth ₹29.9 trillion in July 2026. The scale of that network has intensified debate over who should fund its operation and security.

Reserve Bank of India Governor Sanjay Malhotra addressed the funding question on August 5, 2026:

"Investment in public payment infrastructure is necessary. someone would ultimately have to bear the cost. The choices before us are simple: either the general public has to pay for it through taxes, or we have to levy the merchant discount rate (MDR), following the 'user pays' model."

Malhotra’s remarks described two possible funding approaches. They did not impose a fee.

Congress MP and General Secretary Jairam Ramesh criticized the amendment, arguing that a merchant charge could eventually reach ordinary people:

"The Bill paves the way for imposing a merchant discount rate (MDR), which could easily be applied in the future to all types of digital payments. The burden of this will ultimately fall on ordinary people, who may now have to pay even for using UPI."

That is the opposition’s warning. The government’s stated position is that merchants, not end users, would bear any future MDR.

The committee must decide the structure after enactment

The bill was introduced in the Lok Sabha on August 4, 2026. Members passed it by voice vote on August 6 without a formal debate, while the opposition protested other issues.

Sitharaman issued her clarification on August 7. The NPCI-led UPI and Services Steering Committee will deliberate on the exact structure once the bill is enacted.

That process must settle which payment modes, merchant categories and transaction values could be covered. A government notification would still be needed before any charge begins.

The immediate legal change is the removal of the earlier zero-MDR mandate. The next concrete step is the committee’s decision on the payment modes the Central Government may later designate.