New Delhi: The Lok Sabha Thursday passed a Bill to amend the Payment and Settlement Systems Act, 2007, authorising the government to permit banks and other service providers to levy charges on payments made through the Unified Payments Interface (UPI) and other notified electronic payment modes.
The amendment, passed by the House without discussion amid uproar, seeks to remove the existing legal provision that prevents banks and payment service providers from charging a Merchant Discount Rate (MDR) on notified electronic payment modes. RTGS and NEFT transactions carry service charges, but UPI payments have remained free so far. The proposed change to the Act is part of comprehensive legislation on taxation that was introduced in the House Tuesday.
The Bill was passed through a voice vote after the Lok Sabha resumed proceedings at 2 pm following an earlier adjournment. As soon as the House reassembled, Finance Minister Nirmala Sitharaman moved the Taxation and Other Laws (Amendment) Bill, 2026, for consideration. The Bill seeks to further amend the Payment and Settlement Systems Act, 2007, and the Income Tax Act, 2025, as well as amend the Finance Act, 2026. The government’s approach aims to introduce a small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for banks, payment service providers (PSPs) and payment infrastructure firms that support the digital payments ecosystem, according to sources.
The Bill states: “In the Payment and Settlement Systems Act, 2007, in Section 10A, for the words, figures and letters ‘the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961’, the words ‘one or more electronic modes of payment as the Central Government may, by notification, specify’ shall be substituted with effect from the date of publication of this Act in the Official Gazette.”
Section 10A of the Payment and Settlement Systems Act, 2007 prohibits banks and system providers from imposing charges on electronic payments, while Section 269SU of the Income Tax Act requires large businesses with a turnover exceeding Rs 50 crore to accept payments through specified electronic modes, including RuPay debit cards and BHIM-UPI QR codes. At present, no bank or payment system provider can impose any charge, either directly or indirectly, on anyone for using the electronic modes of payment prescribed under Section 269SU of the Income Tax Act, 1961.
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