🔥 Trending Payment and Settlement Systems Act Amendment: UPI Transaction Charges Explained

The recent amendment to the Payment and Settlement Systems Act, 2007, passed by the Lok Sabha on Thursday, August 6, 2026, introduces significant changes regarding the levying of charges on Unified Payments Interface (UPI) transactions and other digital payment modes ¹²⁶. This amendment creates a legal framework that empowers the Central government to authorize banks and payment service providers to impose such charges in the future ²⁴⁷.

Key Changes Introduced by the Amendment

The primary objective of this amendment is to provide a legal basis for the government to decide on the charging mechanism for digital payments, including UPI. Here are the key aspects:

1. Government Authorization for Charging

The most crucial change is that the amendment explicitly authorizes the Central government to permit banks and other payment service providers to levy charges on UPI transactions ¹³⁸. Previously, the framework for such charges was less defined. This means the government now has the power to notify specific electronic payment modes where charges can be introduced ².

2. Amendment to the Payment and Settlement Systems Act, 2007

The changes were introduced through the Taxation and Other Laws (Amendment) Bill, 2026, which specifically amended provisions of the Payment and Settlement Systems Act, 2007 ²⁵. This legislative action formalizes the government's ability to regulate fees on digital transactions.

3. Scope Beyond UPI

While UPI is a major focus, the amendment also extends to "other notified electronic payment modes" ¹⁸. This indicates a broader intent to potentially introduce charges across various digital payment platforms, not just UPI.

4. Current Status: UPI Transactions Remain Free for Users and Merchants

It is crucial to note that despite the amendment, UPI transactions currently remain free for both users and merchants ⁴. The amendment only establishes the legal framework for charges to be introduced in the future; it does not automatically impose them ². The government has clarified this point, emphasizing that no immediate changes to existing UPI charges have been implemented ⁵.

5. Addressing Revenue Models for Banks and Payment Firms

The move comes as banks and payment firms have been seeking sustainable revenue models for the infrastructure they provide for digital payments ⁴. The amendment could pave the way for these entities to recover costs and invest further in digital payment infrastructure.

6. Potential for Merchant Discount Rate (MDR) on Digital Payments

The Bill also enables the Centre to allow Merchant Discount Rate (MDR) on digital payments ⁴. MDR is a fee paid by a merchant to their acquiring bank for processing debit and credit card transactions. Extending this concept to other digital payments could be a future implication of this amendment ⁹.

7. No Immediate Decision on Charges

The amendment does not mandate the imposition of charges but rather grants the government the authority to do so if deemed necessary ². Any future decision to introduce charges would likely involve further notifications and policy decisions from the government. There have been discussions, for instance, about the possibility of fees for UPI payments above a certain threshold, such as ₹2,000, but these remain speculative until official notifications ¹⁰.

In summary, the amendment to the Payment and Settlement Systems Act, 2007, is a foundational step that grants the Indian government the power to regulate and potentially allow charges on UPI and other digital payment transactions. While the immediate impact on users is minimal, as transactions remain free, it sets the stage for future policy changes concerning the economics of digital payments in India.