Lok Sabha Clears Taxation Bill 2026: Allows UPI Charges

• The Lok Sabha has cleared a Bill giving the Centre power to allow banks and payment service providers to levy charges on UPI transactions.
• The amendment to the Payment and Settlement Systems Act, 2007, replaces an automatic exemption for free electronic payments with a discretionary power vested entirely in the government.
• Industry stakeholders and experts are closely watching the development, as it may impact clients who use digital payment services.

The government has framed the amendment as a step towards creating a sustainable revenue model for banks, payment service providers, and infrastructure firms.

The Lok Sabha has cleared a Bill that gives the Centre power to allow banks and payment service providers to levy charges on Unified Payments Interface (UPI) transactions, marking a significant shift in the country's digital payments landscape. The amendment to the Payment and Settlement Systems Act, 2007, was passed without discussion as part of the larger Taxation and Other Laws (Amendment) Bill, 2026. This move has sparked concerns among industry stakeholders and experts about potential changes to the Payment and Settlement Systems Act, which could lead to new fees on UPI transactions. The government's decision to permit charges on digital payments is seen as a step towards creating a sustainable revenue model for banks, payment service providers, and infrastructure firms. However, this move may also impact clients who use digital payment services, particularly those with low-value transactions. The introduction of Merchant Discount Rate (MDR) on UPI has been a contentious issue in the past, with some experts expecting it to be limited to merchant UPI transactions above a specified value.

The amendment to Section 10A of the Payment and Settlement Systems Act, 2007, replaces an automatic exemption for free electronic payments with a discretionary power vested entirely in the government. Until now, banks and payment providers were barred from imposing any charge on modes covered under Section 269SU, which includes RuPay debit cards and BHIM-UPI QR codes. The government has framed the amendment as a step towards creating a sustainable revenue model for banks, payment service providers, and infrastructure firms. However, this move may also lead to new fees on UPI transactions, impacting clients who use digital payment services. The Payment and Settlement Systems Act, 2007, is a critical piece of legislation that governs the country's digital payments landscape.

The introduction of charges on UPI transactions has significant implications for the country's digital payments ecosystem. Industry stakeholders and experts are closely watching the development, as it may impact clients who use digital payment services. The government's decision to permit charges on digital payments is seen as a step towards creating a sustainable revenue model for banks, payment service providers, and infrastructure firms. However, this move may also lead to new fees on UPI transactions, impacting clients who use digital payment services. The actual shape and scope of any future charge will be decided later through a notification that is still awaited.

Lawyers should watch for potential changes to the Payment and Settlement Systems Act, as this amendment could lead to new fees on UPI transactions, impacting clients who use digital payment services.

Source: Original reporting via ⁠Lok Sabha Clears Taxation Bill 2026: Banks, Payment Apps Allowed To Levy Charges On UPI Transactions