The Ministry of Finance recently tabled the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha. This bill plans to change the Payment and Settlement Systems Act, 2007. Because of this, many people in the banking industry are talking about whether the government will finally allow fees on UPI. Currently, UPI is under a zero-MDR (Merchant Discount Rate) rule, meaning no fees are charged for these transactions.

MDR is a fee that banks and payment companies charge merchants for processing digital payments. For debit cards, this fee is usually 0.25% to 1%, and for credit cards, it can go up to 3%. This money helps banks pay for the technology and security needed to keep payments running. Right now, UPI, RuPay debit cards, and QR code payments do not have these charges because of specific tax laws.

The reason for this new bill is a change in India's tax laws. The old Income-tax Act of 1961 is being replaced by the Income-tax Act of 2025. The current law says UPI is free because of a specific section in the old tax act. The government now wants to remove that old reference. Instead of looking at tax laws to see if UPI is free, people will soon have to check a separate notification from the Ministry of Finance.

Running the UPI system is expensive. The NPCI (National Payments Corporation of India), which manages UPI, spent over ₹3,000 crore on operations and new equipment in FY25. To help banks, the government gives them a subsidy for small merchant payments under ₹2,000. For FY27, the government has set aside ₹2,000 crore for this. However, many banks and committees feel that keeping UPI free forever is not sustainable for the industry.

Legal experts, including Smita Jha from Khaitan & Co, believe this bill is just a technical update. They say it does not automatically start charging for UPI. It simply fixes the legal wording because the tax act has changed. If the government wants to start charging for UPI, they would need to release a new, separate order to do so. For now, the rule that UPI is free stays the same.

For bank officers and customers, there is no immediate change. Even if fees are introduced in the future, they would likely be paid by merchants, not by regular people sending money to friends. However, merchants might slightly increase their prices to cover these costs. Bankers should watch for any new notifications from the Ministry of Finance to see which payment methods remain free in the coming year.