The draft bill on taxation and other laws (Amendment) of 2026 has caused widespread resonance because there are concerns that the Unified Payments Interface (UPI) system may cease to be free for users. However, Finance Minister Nirmala Sitharaman dispelled these doubts, stating that consumers will continue to make payments without any charges, and any future MDR fees will be limited to specific categories of seller transactions.
She noted in the Rajya Sabha that 'the MDR framework has not yet been finalized.' It is important to emphasize that the bill itself does not set an MDR rate or define the sellers or transactions that might eventually be charged; it only changes the legal framework governing electronic payment charges, leaving the operational details of the future MDR regime for separate resolution.
What does the bill propose?
The bill provides for amendments to Section 10A of the Payment and Settlement Systems Act, 2007. It replaces the existing reference to modes of electronic payment specified by the Income Tax Act with the wording 'one or more electronic modes of payment that the Central Government may specify by notification.' Furthermore, the bill stipulates that 'no bank or system provider shall charge, directly or indirectly, any fee to the person making or receiving payment' through electronic methods specified by the Union government.
The government further clarified that consumers will not pay a transaction fee for UPI payments. It was stated that any MDR, if introduced, would apply only to a limited set of seller transactions exceeding a specified threshold, and at a nominal rate. This rate, according to the government, will be lower than the MDR charged on debit and credit cards.
The government also announced that the NPCI-led Committee on UPI and Services will decide on the introduction of MDR, if any, after the Bill is passed. This leaves several operational issues for any future structure.
Operational questions for the future structure
There are six key questions that the future structure must resolve:
- Who is the chargeable seller? The bill does not specify which sellers will be responsible for MDR. The government stated that the future MDR will only concern a limited category of seller transactions exceeding a certain threshold, but the categories or threshold are not specified. Thus, the first question is defining the criteria for an eligible seller category, which could be based on annual revenue, transaction volume, transaction value, or a combination of these factors, but the Bill prescribes no such criteria.
- What triggers MDR? The bill does not indicate transaction-level conditions for potential MDR. The future structure must clarify whether the fee applies because the seller exceeds a certain revenue or transaction threshold, because an individual payment exceeds a set amount, or if both conditions are met. Government clarification stated that potential MDR would apply to seller transactions 'above the specified threshold,' but it does not clarify whether this threshold refers to the seller's overall business or the value of individual operations.
- Will the fee be percentage-based or capped? The bill does not define the MDR rate or the method of calculating the possible fee. The government mentioned that any future MDR would be charged at a 'nominal rate' and would be lower than the MDR charged on debit and credit cards, but it did not announce a percentage, a fixed amount, or a limit. Consequently, the structure must decide whether MDR is calculated as a percentage of the transaction value, set as a fixed amount, or subject to a maximum charge, which will determine the application of the fee to payments of different values.
- Who receives the income from MDR? The bill lacks a mechanism for distributing income from potential MDR. The future structure must establish how MDR revenues will be distributed among ecosystem participants, including the issuing bank, acquiring bank, UPI application, payment service provider bank, payment aggregator, and NPCI. The Bill amendment relates to the powers to define electronic payment methods and apply the prohibition on charging fees, but it does not establish a commercial agreement between participants in a possible MDR system. The government stated that the proposed change aims to support the long-term sustainability of UPI and continuous investment in cybersecurity, fraud prevention, and infrastructure, but how these costs will be covered and distributed is not stipulated in the Bill.
- Can sellers pass the fee on to customers? The government stated that consumers will not face transaction fees when using UPI. It was also said that all person-to-person UPI transactions will remain free, and the vast majority of seller transactions will remain free. The provision of the Bill is formulated regarding fees charged to the person 'making or receiving payment' through the specified electronic methods. If a separate MDR structure imposes a fee on selected sellers, it must clarify how this cost can be accounted for by sellers, including the possibility of recovering costs through a separate surcharge, discount changes, or minimum payment terms, but the Bill does not establish rules for such situations.
- What happens with refunds, cancellations, and failed payments? The bill does not specify how potential MDR will be treated if a transaction is subsequently cancelled, refunded, or disputed. The future structure must determine whether and how MDR will be returned upon cancellation or partial refund of a transaction. Furthermore, the future MDR structure must define the procedure for handling failed payments and disputed transactions if MDR has already been applied. These operational rules are not contained in the Bill.
