The Parliament has begun to dismantle the free-UPI regime through the Taxation and Other Laws (Amendment) Bill, 2026, which, for the most part, is a measure about direct taxation. However, a single clause within it repeals a rule that has stood since January 2020 — the prohibition on levying a merchant discount rate (MDR) on UPI payments. The MDR is the fee a merchant pays its bank to accept a digital payment, ordinarily one to two per cent on a card transaction. On UPI, it has been zero, mandated by statute.

The Bill itself imposes no fee. It withdraws the automatic prohibition and empowers the government to decide, by notification, which payment modes remain free of charge. It specifies no rate, no threshold, and no exemption for small merchants or ordinary users. The government has given assurances that only large merchants will be charged, and never consumers. Those assurances may well be sincere, but they are not guaranteed by the law. The statute now permits the executive to decide the matter later, without returning to Parliament.

The Bill has, moreover, cleared only the Lok Sabha; it is not yet law. The correct interpretation, at this juncture, is therefore that UPI may be charged, on terms yet to be decided.

What drove the change?

UPI was never costless. The infrastructure has always been paid for either by banks, the payment applications, or the government, which reimbursed them for the fee they were required to forgo. That........

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