New Delhi: The Lok Sabha has passed an amendment to the Payment and Settlement Systems (PSS) Act, 2007, creating a legal framework that allows the Central Government to authorize banks and payment service providers to levy charges on certain digital payment modes, including Unified Payments Interface (UPI) transactions, through future notifications. However, the Bill does not impose charges immediately, and any such move would require a separate government notification.
The legislative change has sparked widespread discussion over the future of UPI, which has become India’s most popular digital payment system due to its free and seamless transactions.
What Does the Bill Change?
The amendment removes the existing legal restriction that prevented banks and payment system providers from levying charges on notified electronic payment modes. This means the government will now have the authority to permit charges, such as the Merchant Discount Rate (MDR), on specified digital transactions if it chooses to do so in the future.
Importantly, the passage of the Bill does not automatically mean UPI transactions will become chargeable.
Will Consumers Have to Pay?
Finance Minister Nirmala Sitharaman has clarified that any future Merchant Discount Rate (MDR), if introduced, would be borne by merchants and not by individual consumers. She said reports suggesting that ordinary users would be charged for making UPI payments were misleading.
The clarification comes amid growing concerns among millions of UPI users who feared they might have to pay transaction fees for everyday digital payments.
Why Is the Change Being Considered?
Banks and payment service providers have long argued that maintaining the UPI ecosystem involves significant infrastructure and operational costs. Supporters of the amendment believe allowing a framework for transaction charges could make the digital payments ecosystem more sustainable while enabling continued investment in technology and security.
At present, the government compensates the ecosystem through incentive schemes because UPI transactions remain free for users and merchants in many cases.
Mixed Reactions
The amendment has drawn mixed responses from industry experts and political leaders. While some believe it provides flexibility for the government to ensure the long-term sustainability of digital payments, others fear that introducing charges could discourage merchants from accepting UPI payments and slow the momentum of India’s digital payments revolution.
What Happens Next?
The Bill now moves to the Rajya Sabha for consideration. Even if it becomes law, UPI transactions will remain free unless the government separately issues a notification permitting specific charges under the amended legal framework.
For now, users can continue making UPI payments as usual, while businesses and the digital payments industry await further clarity on whether—and under what circumstances—the government may allow transaction charges in the future.
