The Parliament has cleared the Taxation and Other Laws (Amendment) Bill, 2026, with Finance Minister Nirmala Sitharaman confirming that UPI remains free for consumers. While the government has pledged to keep retail digital payments cost-free, the new law removes the statutory zero-Merchant Discount Rate (MDR) guarantee, shifting the authority to set future payment fees to the government via notification.
The Indian Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 10, 2026, bringing significant changes to the legal framework governing digital payments. During the proceedings, Finance Minister Nirmala Sitharaman addressed public concerns by confirming that there are no new charges for Unified Payments Interface (UPI) users. She explicitly stated that UPI will remain free for consumers, maintaining the current structure that has seen widespread adoption across the country.
Transitioning the MDR Framework
The most significant regulatory change in this bill involves the amendment of Section 10A of the Payment and Settlement Systems Act, 2007. Previously, this section acted as a strict legal shield that mandated a zero-Merchant Discount Rate (MDR) for UPI and RuPay transactions. The new legislation removes this specific statutory requirement. In its place, the government has introduced an enabling provision that grants it the authority to decide, through official notifications, which electronic payment modes will remain free or exempt from charges.
For investors and participants in the banking and fintech sectors, this represents a shift in policy control. Instead of the 'zero-charge' model being locked into legislation, it now moves into the domain of executive discretion. This grants the government the flexibility to adjust the MDR framework for specific merchant categories or transaction types without requiring further parliamentary debate. While the government has currently signaled no intent to introduce charges for small merchants or consumers, this legislative pivot allows for potential future policy adjustments to address sector sustainability.
Broader Economic and Investment Provisions
The bill also contains several provisions aimed at stimulating the economy beyond the digital payments space. It includes measures to attract foreign capital by simplifying tax regulations for global investment funds and fund managers looking to relocate to India. Additionally, the legislation provides regulatory clarity intended to help foreign cloud companies operate data centers within the country more effectively. These measures are designed to support domestic electronics manufacturing and improve the ease of doing business for international entities.
Moving forward, the primary focus for stakeholders will be the government’s future notifications regarding the digital payments ecosystem. Because the statutory guarantee for zero-MDR has been replaced by this enabling framework, any future changes to the fee structure for merchants or high-value transactions will occur through policy notifications rather than legislative amendments. Investors may monitor the upcoming guidelines from the UPI Services Steering Committee and government announcements to understand how the zero-cost model will be managed in the long term.