The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 6, enabling the introduction of a Merchant Discount Rate (MDR) on some Unified Payments Interface (UPI) transactions in India. This legislative change marks a shift from UPI’s decade-long model of free digital payments, allowing merchants to be charged for certain transactions, according to inc42.com.
The Bill amends the Payment and Settlement Systems Act, 2007, and now moves to the Rajya Sabha for approval. Finance Minister Nirmala Sitharaman clarified that MDR charges would be levied on merchants, not consumers, aiming to help banks and fintech companies invest more in payment infrastructure, innovation, and security. The UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI), has yet to decide on the actual implementation of MDR fees.
UPI has transformed India’s digital payments landscape by enabling fast, interoperable, and free transactions for nearly a decade. Introducing MDR could add friction to this ecosystem by increasing costs for merchants, potentially impacting adoption and usage. RBI Governor Sanjay Malhotra noted that consumers might ultimately bear these costs indirectly, highlighting the ongoing debate about who should fund India’s near-zero-cost digital payments infrastructure.
The amendment’s passage in the Lok Sabha on August 6 is a key milestone, with the Rajya Sabha’s decision pending. The outcome will determine whether MDR fees become a standard feature of UPI transactions, influencing the future economics of India’s digital payments sector.