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India Moves to Scrap Blanket UPI Fee Ban in Payments Law Overhaul
India proposes scrapping blanket UPI fee ban, letting the government decide which payment methods attract MDR. Pine Labs CEO calls it a step toward covering soaring infrastructure costs.
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The Indian government has proposed a change to the Payment and Settlement Systems Act (PSSA), 2007, that would let the Centre directly decide which electronic payment methods stay free of the merchant discount rate (MDR). The amendment, part of the Taxation And Other Laws (Amendment) Bill, 2026, replaces a blanket prohibition on UPI transaction charges with a system where the government notifies exempt modes.
Section 10A of the 2007 Act currently bars banks and system providers from imposing any fee on UPI payments. The proposed text swaps that language. Instead of citing electronic payment modes prescribed under Section 269SU of the Income-tax Act, the new wording says the Centre can specify one or more exempt modes by notification, effective from the Bill's publication in the official gazette.
The Bill does not say which payment methods would attract charges or how much. Industry players have been pressing for MDR reintroduction to cover the cost of running UPI infrastructure. The zero-fee regime has been in place for nearly six years.
Pine Labs cofounder and CEO Amrish Rau welcomed the move. In a post on X, Rau called the amendments a step toward implementing MDR in some form. He said the zero-MDR regime had slowed ecosystem growth, with investments in digital payments infrastructure rising almost 300% over the past 12-24 months. Rau pointed to Brazil's PIX and China's real-time payment systems, which charge MDR of 30-40 basis points and have achieved over 90% digital payments penetration. He claimed India has brought only about 35-40% of users into digital payments.