Free UPI no longer guaranteed

Parliament has removed the legal prohibition on levying charges, replacing it with the govt’s power to impose fees through future notifications

The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, by voice vote amid Opposition protests that never became a real debate. Buried inside a broader tax bill was one consequential change: an amendment to Section 10A of the Payment and Settlement Systems Act, 2007 — the provision legally barring banks and payment firms from charging Indians to use UPI. That wall is gone. In its place sits the government’s discretion to notify, whenever it chooses, which payment modes may attract a fee.

To be fair, nothing changes today. No Merchant Discount Rate has been announced, and UPI remains free at the counter. But the distinction that mattered — free by law — has quietly become free by permission. Permission, unlike law, can be withdrawn by notification, not by Parliament. UPI is the spine of India’s digital economy: in July alone it carried 23.66 billion transactions worth nearly Rs 30 lakh crore, some 85 percent of the country’s digital payments. That scale was built on one promise, kept since January 2020: UPI would cost nothing. The Finance Ministry itself called charge rumours baseless and misleading as recently as June 2025. Fourteen months later, it has legislated the very power it once denied wanting. Reports suggest the eventual target is a 0.25–0.4 percent levy on merchant payments above Rs 2,000 — just 4 percent of UPI’s volume but 67 percent of its value — while small payments and person-to-person transfers stay free. That sounds reasonable, until RBI Governor Sanjay Malhotra’s own admission: someone always pays. It may not be the same consumer at the till, he said, but the wider economy absorbs it regardless.

A merchant charged 0.4 percent rarely absorbs it quietly — prices creep up, and "free" starts to feel like a technicality. That is why this will not sit well with ordinary users, whatever the fine print says. Nirmala Sitharaman’s insistence that MDR applies only to merchants, not customers, is technically accurate and practically beside the point — few consumers distinguish between a fee charged to them and one passed through to them. A bill pushed through without real debate only compounds the problem: a foundational digital-inclusion guarantee diluted in a voice vote.

The fallback case is not baseless, though. Zero-MDR costs the exchequer real money — Rs 2,000 crore is budgeted this year alone to subsidise banks for low-value UPI transactions — and payment companies have long argued they cannot keep funding fraud detection and infrastructure on zero revenue. Even the traders’ body CAIT has said it would accept a nominal charge on high-value transactions, provided small merchants and ordinary users stay protected. That may be a fair trade-off eventually. But it deserved Parliament’s scrutiny, not a voice vote amid din. Digital India’s biggest success story was built on trust as much as technology. Spending that trust this quietly is the real risk — to UPI’s next hundred crore users, and to the idea that "Digital India" was ever a guarantee rather than a policy revisable by notification.