The Lok Sabha on Thursday passed a key amendment to the Payment and Settlement Systems Act, 2007, paving the way for the Central Government to levy service charges on UPI and other digital payment modes in the future. The amendment grants the government the authority to notify charges on specific digital payment methods, though no immediate fees will be imposed.
Lok Sabha Approves Key Amendment
The amendment modifies the Payment and Settlement Systems Act, 2007, particularly the provisions governing electronic payment systems. Under the revised law, the Central Government will have the power to decide whether service charges or Merchant Discount Rate (MDR) can be imposed on selected digital payment modes through an official notification.
This means the government now has the legal authority to introduce charges in the future, if required.
Current Rule: UPI Transactions Are Free
At present, Section 10A of the Act prohibits banks and payment service providers from collecting the Merchant Discount Rate (MDR) or any similar charges on certain electronic payment transactions, including UPI.
As a result, UPI transactions have remained completely free for users and merchants under the existing legal framework.
No Immediate Charges on UPI
Although the amendment has been passed by the Lok Sabha, UPI transactions will not become chargeable immediately.
The government has clarified that any charges can be implemented only after issuing a separate official notification. Until then, UPI transactions will continue to remain free.
Government to Decide Future Charges
Once the amendment comes into force, the Central Government will be empowered to determine:
- Which digital payment methods may attract service charges.
- The rate or percentage of such charges.
- The categories of transactions to which the charges will apply.
The details will be announced only through future government notifications.
Why Is the Amendment Being Introduced?
The primary objective of the amendment is to provide a sustainable revenue model for banks, payment service providers, and digital payment infrastructure companies that operate and maintain India’s rapidly growing digital payments ecosystem.
The government believes that a stable revenue mechanism could help strengthen and expand digital payment infrastructure across the country.
High-Value Commercial Transactions May Be Targeted
According to reports, the proposed charges are likely to focus mainly on high-value commercial or merchant transactions through the Merchant Discount Rate (MDR).
Personal UPI transfers between individuals are expected to remain exempt, although the Central Government has not yet made any official announcement confirming this.
RTGS and NEFT Already Have Charges
Unlike UPI, several banking services such as RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer) already involve service charges under certain conditions.
The amendment seeks to create a similar legal framework for digital payment systems, enabling the government to introduce charges whenever deemed necessary.
What Happens Next?
The passage of the amendment does not automatically introduce UPI charges. Users will continue to enjoy free UPI transactions unless and until the Central Government issues a separate notification specifying:
- The payment methods covered.
- The applicable charges.
- The effective date.
- The categories of transactions affected.
Until such a notification is issued, there will be no change in the current UPI payment system.
