The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, which allows the government to levy a fee on merchants who accept payments through UPI. The bill does not immediately impose the fee, but it clears the legal path for future regulation.
UPI grew rapidly because of high smartphone penetration, the confidence it built during the COVID lockdowns, and strong support from the government and RBI. It is now used by merchants in cities, towns and villages, making cash almost obsolete for small payments.
One of UPI’s biggest advantages was that it was free for merchants. Unlike credit or debit cards, which charge a merchant discount rate (MDR) of about 2 % on each transaction, UPI did not require merchants to pay any fee. Even when merchants used a payment gateway or an acquirer like Paytm, the charges were much lower.
The new bill does not automatically set an MDR, but talks are underway to introduce a fee of 25–30 basis points (0.25–0.30 %) on high‑value UPI transactions. This fee would apply only to transactions above ₹2,000 and to large commercial entities, keeping it lower than the 80–90 bps charged by debit cards and the 250 bps that credit cards can charge.
If a 25 bps fee is applied, UPI transactions above ₹2,000 could generate about ₹13,000 crore in revenue each year. Banks are expected to receive 60–65 % of this fee, merchant acquirers 15–20 %, and the remainder will be split among PSP banks, receiving banks and NPCI.
Large merchants can usually absorb the fee by adding it to their costs, similar to how they handle gateway fees. Smaller, mom‑and‑pop shops might feel the impact more acutely. To avoid the fee, some merchants could split a single purchase into multiple smaller bills, creating extra friction for customers.
The government will watch the fee closely because UPI is a national success story. It wants to keep the fee low so that small traders and everyday consumers are not hurt, and so that the system remains popular and continues to attract new players.
Overall, if the fee is kept modest and the revenue is used to strengthen the UPI ecosystem, it could bring more innovation and financial stability to the digital payment space without undermining its widespread adoption.