India’s Zero-MDR UPI Law Just Changed

India’s New UPI Legislation: What the Taxation and Other Laws (Amendment) Bill, 2026 Actually Changes

For over six years, one principle has anchored India’s digital payments ecosystem: transactions made through the Unified Payments Interface (UPI) carry no merchant charges. That principle now sits on new legal footing. On August 4, 2026, Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha, and the House passed it on August 6, 2026. The Bill now moves to the Rajya Sabha for consideration. While digital payments were only one component of a wide-ranging legislative package, the provisions concerning UPI have drawn the most attention, given the platform’s central role in everyday financial life across the country.

Key Facts at a Glance

The Legislative Background

The Bill replaces the Income-tax (Amendment) Ordinance, 2026, which had been promulgated on June 5, 2026, and formally amends three existing statutes: the Payment and Settlement Systems Act, 2007; the Income-tax Act, 2025; and the Finance Act, 2026. Its scope extends well beyond payments, touching areas such as tax treatment for foreign institutional investors, incentives for electronics manufacturing, data centre taxation, and rules governing business trusts. Within this broader framework, the amendment to Section 10A of the Payment and Settlement Systems Act, 2007, is the provision most directly relevant to UPI users, merchants, and payment service providers.

What Section 10A Previously Required

Since January 2020, Section 10A had mandated a blanket zero Merchant Discount Rate (MDR) across UPI and RuPay debit card transactions. In practical terms, this meant that banks and payment service providers were barred by law from charging merchants any processing fee on these transactions, regardless of transaction size or merchant category. The provision was widely credited with accelerating UPI adoption among small merchants and individual users, who could transact digitally without absorbing or passing on additional costs.

What Changes vs What Does Not

What the 2026 Amendment Does

The new Bill does not itself introduce any merchant charge on UPI transactions. Instead, it removes the blanket statutory prohibition and replaces it with an enabling framework. Under the amended provision, the Central Government gains the authority to notify, through executive order, which electronic payment modes will continue to remain exempt from MDR and which may, in the future, be permitted to carry a fee. This is a structural change in where the decision-making power sits: rather than a fixed rule embedded in the Act itself, the matter becomes one of executive notification, allowing the government flexibility to calibrate its approach as the payments landscape evolves.

It is worth being precise about what this means in practice. As of this writing, no MDR has been notified, and no charges have been imposed on UPI transactions as a direct result of this legislation. The Bill creates the legal capacity for such a change to be made; it does not, by itself, make that change.

Reported Direction of Future Policy

Several financial publications, citing government sources, have indicated the broad direction any future MDR framework may take:

• Selective application: Any eventual MDR is expected to apply selectively, potentially in the range of 0.3 to 0.5 percent.
• Transaction threshold: Any such charge would likely be limited to higher-value transactions rather than everyday, small-ticket payments.
• Consumer and small-merchant protection: Consumers and small merchants are widely reported to be the intended beneficiaries of continued protection.
• Notification requirement: Any future charge structure would require a separate government notification before taking effect.

Further details are expected to emerge as the rule-making process unfolds.

Why This Matters: The Scale of UPI

The significance of this legislative shift is best understood against the scale UPI has achieved. According to Ministry of Finance data furnished in the Lok Sabha, citing NPCI figures, annual transaction volume has grown steadily over the past five financial years, as shown below.

Figure 1: UPI annual transaction volume, FY2021-22 to FY2025-26 (Source: Ministry of Finance / NPCI, Lok Sabha reply, July 2026)

In FY2025-26 alone, UPI processed approximately 24,161.69 crore transactions worth close to ₹314.23 lakh crore, a year-on-year volume increase of roughly 30 percent. In July 2026, the platform recorded a monthly high of 23.7 billion transactions valued at approximately ₹29.9 lakh crore. By 2025, UPI is estimated to have accounted for roughly 84 percent of all digital payments made in India, a scale that international observers, including the International Monetary Fund, have noted exceeds the daily transaction volumes processed by legacy global card networks. Any policy decision affecting the cost structure of a system operating at this magnitude naturally carries considerable weight for banks, payment aggregators, fintech companies, and the merchant community alike.

What Comes Next

Having cleared the Lok Sabha, the Bill now awaits consideration in the Rajya Sabha before it can receive Presidential assent and take effect as law. Until that process concludes, and until any specific MDR notification is issued thereafter, UPI transactions continue to operate under the existing zero-charge arrangement that users and merchants have relied upon since 2020.

For a payments infrastructure that has become integral to daily commerce in India, this amendment represents a change in legal architecture rather than an immediate change in cost. Its ultimate impact will depend on the notifications that follow, and on how the government chooses to exercise the discretion this Bill now grants it.

(This article reflects the legislative status of the Bill as of August 7, 2026. Readers are encouraged to verify the current status before relying on this information for business or compliance decisions.)