India’s users scan a QR code, tap ‘Pay’ and finish a UPI transaction in seconds, all without a fee. That smooth experience is unlikely to change overnight, but a new law could alter the cost structure of the country’s biggest digital payment system.
The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026. The bill lets the government decide which electronic payment methods stay free and which can carry a merchant discount rate (MDR). If MDR is applied to UPI, it would be the first time the system could charge merchants.
MDR was removed from UPI in January 2020 to boost digital adoption. The move worked: today about 88 percent of all digital transactions in India use UPI. However, banks and fintechs say the infrastructure costs are high and the zero‑fee model is not financially sustainable.
A Standing Committee on Finance report on 12 March 2026 highlighted that zero MDR has made UPI affordable but also left the ecosystem without a revenue source. The government has not paid the UPI subsidy for the last financial year, adding pressure on payment companies.
The bill does not automatically charge consumers. Industry experts believe that if MDR is re‑introduced, it will target merchant‑to‑merchant (P2M) transactions, especially those above Rs 2,000, rather than person‑to‑person transfers.
Harsh Vardhan Masta, CEO of PB PAY, said the proposal would “lay the foundation for a more sustainable and resilient digital payments ecosystem.” He added that MDR would fund technology, security and future growth.
Kunal Jhunjhunwala, founder of airpay, explained that UPI has moved beyond pure adoption. “The next phase of growth requires a balanced economic framework that protects merchants and consumers while enabling infrastructure players to invest sustainably,” he said.
For now, everyday users are unlikely to notice any change in how they pay with UPI. The bill only creates a legal framework; actual charges would depend on future notifications and policy decisions.