Parliament clears taxation bill: FM Sitharaman says UPI will remain free; no framework on MDR yet

Published 10 August 2026 · politics

Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, on Monday (10 August), with Union Finance Minister Nirmala Sitharaman reiterating that the legislation does

Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, on Monday (10 August), with Union Finance Minister Nirmala Sitharaman reiterating that the legislation does not impose a tax or transaction charge on UPI payments. FM Sitharaman said consumers will continue to use the digital payments system without paying a fee, while any decision on introducing a Merchant Discount Rate (MDR) remains pending. The Taxation Bill, which was cleared by the Lok Sabha last week, was passed by the Rajya Sabha on Monday through a voice vote following a brief discussion and Sitharaman's response. Also Read | FM Nirmala Sitharaman hits back at Jairam Ramesh over UPI taxation "Will consumer pay any UPI charge - No. UPI has remained free for consumers since its launch and every Indian will continue to make this instant digital without paying any transaction charge," Sitharaman said. UPI charges: What does the new taxation Bill say? The legislation proposes changes to Section 10A of the Payment and Settlement Systems Act, 2007. The provision is intended to give the government the ability to specify, through a notification, which electronic payment systems or transactions must remain protected from charges.

The amendment itself does not introduce a tax or transaction fee on UPI users. At present, banks and payment system providers cannot directly or indirectly charge consumers for transactions conducted through UPI or RuPay debit cards under the existing zero-MDR framework. The new provision would allow the PM Modi-led government to determine which electronic payment modes continue to receive statutory protection from charges. Will UPI users have to pay MDR? No immediate change has been announced for consumers. The legislation provides the legal framework for a possible future modification of the zero-MDR system, but no MDR framework has been finalised. Once Parliament passes the legislation, the UPI and Services Steering Committee, headed by the Payments Corporation of India (NPCI), will consider whether MDR should be introduced and, if so, determine its scope and structure. Also Read | UPI ending free payments? MyGovIndia busts myths on charges and merchant fees This means the passage of the Bill does not automatically introduce MDR on UPI transactions. The government's clarification comes amid renewed attention on how India's rapidly expanding digital payments ecosystem is financed.

UPI transactions currently operate under a zero-MDR structure, meaning merchants and users do not pay a transaction fee to payment system operators for eligible UPI payments. What is MDR and why does it matter for UPI? Merchant Discount Rate, or MDR, is a fee associated with processing digital payments. It is generally paid by merchants and distributed among entities involved in processing a transaction. For UPI, the government has maintained a zero-MDR regime to encourage adoption of digital payments. Payment service providers and banks instead receive financial support through a government-backed incentive scheme. The amendment gives the government greater legal flexibility over which digital payment systems remain protected from transaction charges. However, the legislation does not specify when MDR could be introduced or what such a framework would look like. What else does the Taxation and Other Laws Amendment Bill propose? The legislation covers several tax and investment-related measures beyond digital payments. It seeks to remove the existing linkage between the Payment and Settlement Systems Act and the Income Tax Act, while also providing legal backing for changes to the zero-MDR framework covering UPI and RuPay card transactions.