The line that decides whether your UPI payment stays free may end up being drawn at ₹2,000.
The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026, which rewrites Section 10A of the Payment and Settlement Systems Act, 2007. The old provision barred banks and payment service providers from charging users of notified electronic payment modes. The new one inverts the logic: the Centre will now notify which modes must remain free — and, by implication, which need not.
That inversion is the whole story. Once the amendment takes effect, three separate levers — which payment systems can carry a charge, how much that charge can be, and which merchants or transaction types are exempt — sit with the executive. Each can be pulled, adjusted or reversed by notification, without a return trip to Parliament.
Nothing changes at the counter today. The Bill sets no rate and imposes no fee. What it removes is the statutory wall that has kept UPI free since January 2020, when the Central Board of Direct Taxes scrapped the Merchant Discount Rate on person-to-merchant transactions. Finance Minister Nirmala Sitharaman moved the Bill, which cleared the House by voice vote without discussion, amid Opposition protests over an unrelated matter.
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What MDR actually is
Merchant Discount Rate is the cut a shop pays on every digital payment it accepts. Formally, the customer is never billed — the money comes out of the seller’s end.
Work it through. On a ₹10,000 purchase at 0.3 per cent MDR, the shop receives ₹9,970. The ₹30 does not go to one place: it is sliced between the customer’s bank, the merchant’s bank, and the network that switches the transaction — in UPI’s case, the National Payments Corporation of India. You would see none of it on your app screen.
Card payments show what happens when that slice gets fat. Credit card MDR commonly runs around two per cent, which is exactly why shopkeepers wave you off the card machine or quietly add a surcharge. UPI and RuPay debit cards have carried none of this since January 2020, when the levy was zeroed to accelerate adoption.
The numbers now under discussion are far smaller than a card swipe. Reports peg the levy at 0.25 to 0.4 per cent on business payments above ₹2,000, with some estimates stretching to 0.5 per cent. Person-to-person transfers — splitting a dinner bill, sending money home — are expected to stay untouched regardless of amount.
Why ₹2,000 is the number that matters
The threshold is where the design gets clever. Officials cited in reports say transactions above ₹2,000 account for roughly five per cent of UPI volume but close to 65 per cent of value. In July 2026, UPI processed 23.7 billion transactions worth about ₹29.9 lakh crore.
A cut-off there does two things at once: it leaves the tea stall, the vegetable cart and the autorickshaw ride outside the net, while capturing most of the money moving through the system. Officials argue 95 per cent of transactions would face no charge at all, and that a fee this small is unlikely to be passed on.
Industry is not convinced. Saurabh Sanyal, Secretary General of ASSOCHAM, told ANI on the sidelines of the chamber’s FinTech Festival that MDR would be a setback for smaller businesses that run high transaction counts on thin margins. His prescription is a carve-out: keep MSMEs out entirely, and reserve charges for large merchants — beyond ₹1 crore in his suggested framing — who already absorb similar costs through banking channels.
The CPI(M) Politburo went further, calling the proposal a breach of public trust and demanding the legislation be withdrawn, arguing that a government which urged citizens to abandon cash cannot now monetise the infrastructure it asked them to adopt.
RBI Governor Sanjay Malhotra has stayed deliberately non-committal, calling it premature to discuss MDR and pointing to the arithmetic underneath: either taxpayers fund the rails collectively, or users pay directly.
Those rails are not cheap. Every tap runs through issuing and acquiring banks, NPCI’s switching layer, the payment app on your phone, and behind all of it, data centres, fraud-monitoring systems and security teams that scale with volume rather than revenue. Since 2020, that bill has been split between banks, payment service providers and the exchequer. The government’s UPI incentive scheme paid out ₹3,631 crore in 2023-24, and allocations have thinned since even as volumes climb. The uncomfortable question inside the industry is not what today’s costs look like but what they look like if UPI volumes multiply several times over, with the fee still set at zero.
What happens next
No fee can appear without a Gazette notification and RBI guidelines specifying transaction categories, rates and rollout. That is the window worth watching.
Merchants should read their payment aggregator agreements now — particularly clauses that allow pass-through of statutory charges without fresh consent — and ask whether any per-transaction cap will apply. Unlike a card payment, a UPI transfer involves no credit risk or funding cost, which is the industry’s central argument for a ceiling once operating costs are recovered.
For everyone else, the practical test is simple: if you are paying a person, nothing on the table today touches you. If you are paying a business more than ₹2,000, watch the notification, not the headlines.
