GUWAHATI: The Lok Sabha on Thursday, August 6, passed the Taxation and Other Laws (Amendment) Bill, 2026, which amends the Payment and Settlement Systems Act, 2007 to authorise the Central government to permit banks and other payment service providers to levy charges on transactions made through the Unified Payments Interface (UPI) and other notified electronic payment modes.
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The Bill was passed by voice vote without any discussion amid persistent sloganeering by Opposition members over various issues, including allegations of theft of donations at the Ram temple in Ayodhya.
The amendment removes the existing legal provision that barred banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes.
At present, real-time payment systems such as RTGS and NEFT attract service charges, while UPI transactions have remained exempt from MDR since their introduction.
After the House reconvened at 2 PM following an earlier adjournment, Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, seeking amendments to the Payment and Settlement Systems Act, 2007, the Income Tax Act, 2025, and the Finance Act, 2026.
According to the government's proposal, the changes are intended to create a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms, while keeping the cost impact on consumers and small businesses minimal.
Under the proposed framework, person-to-person (P2P) UPI transactions will continue to remain outside the scope of MDR. However, banks and fintech companies may be permitted to charge an MDR ranging from 0.25% to 0.4% on business payments exceeding Rs 2,000, subject to an overall cap on the amount that can be charged.
Government officials have maintained that the proposed MDR would remain lower than the charges applicable to credit and debit card transactions and said most merchants are unlikely to pass on the additional cost to consumers.