Will Your Daily Scans Stay Free? What the Finance Ministry’s New UPI Amendment Really Means

In a major policy update regarding India’s digital payment ecosystem, the Union Ministry of Finance has introduced statutory amendments to the Payment and Settlement Systems (PSS) Act, 2007 (via the Taxation and Other Laws Amendment Bill, 2026).

​Until now, Section 10A of the PSS Act enforced a blanket, legally binding Zero-MDR (Merchant Discount Rate) regime on all UPI and RuPay debit card transactions, legally prohibiting banks and payment apps from charging any fees.

​The new proposed amendment fundamentally rewrites this framework: it removes the statutory zero-MDR mandate and replaces it with executive authority, allowing the government to notify which electronic payment modes, transaction sizes, or merchant categories can attract MDR charges anytime via a simple official notification.

​Here is a breakdown of what this statutory amendment actually changes, why the government is giving itself this flexible power, and how it impacts consumers, large merchants, and the future of UPI.

​What Is the Legislative Amendment Changing?

​To understand this policy shift, it helps to compare the old statutory rule with the proposed framework:

• The Old Framework (Blanket Statutory Prohibition): Under Section 10A of the PSS Act introduced in 2020, banks and payment service providers were legally barred from levying any MDR fees on UPI or RuPay debit card payments. Modifying or lifting this zero-fee rule required a full parliamentary legislative process.

• The New Framework (Notification-Based Flexibility): The new amendment scraps the mandatory zero-MDR clause from the statute. Instead, it grants the Finance Ministry executive power to regulate, enable, or modify MDR charges across specific payment channels, transaction thresholds, or merchant tiers simply by issuing executive notifications.

​By shifting from a fixed law to an executive notification system, the government can adjust payment charges dynamically as market conditions, inflation, and infrastructure demands change over time.

​Why Is the Government Amending the Law Now?

​The push behind this legal update comes from years of financial friction inside India's digital payment ecosystem.

​The "Financial Unsustainability" Problem

​According to a report by the Parliamentary Standing Committee on Finance, UPI processes over 23 billion transactions worth nearly ₹30 lakh crore every single month, accounting for almost 88% of all digital transactions in India.

​However, maintaining the massive server networks, high-speed data links, cybersecurity, and fraud-detection systems required to handle this volume costs payment service providers and banks an estimated ₹10,000 crore annually. The government’s annual incentive allocation of ₹1,500 crore to offset these operating costs covers only a tiny fraction of the actual expense.

​Industry bodies like the Payments Council of India (PCI) argued that a mandatory, blanket zero-MDR regime threatened long-term operational quality, leading the Parliamentary Committee to observe that zero-MDR without a revenue model had become "financially unsustainable."

​Who Will Pay, and Who Remains Protected?

​While the amendment opens the door for executive notifications on MDR, official guidelines and parliamentary discussions clarify how these powers are expected to be used:

Consumers Will NOT Pay Extra

​The proposed amendment does not introduce any direct transaction fees or usage charges for individual consumers scanning QR codes or transferring funds via UPI. The Merchant Discount Rate is strictly a fee paid by businesses accepting digital payments, not the buyers making them.

Large Merchants (Turnover Above ₹50 Crore)

​When the Finance Ministry issues its notifications following the passage of the bill, MDR charges are expected to apply primarily to large corporate merchants, retail chains, and big ecommerce platforms. For instance, notifications may allow an MDR of around 0.3% on high-value transactions at major retail establishments.

Small Merchants and Street Vendors Remain Supported

​Neighborhood kirana stores, street vendors, and small business owners (those with annual turnover under ₹20 lakh or handling low-value BHIM-UPI transactions) are expected to remain exempt under government incentive schemes, keeping digital acceptance 100% free for everyday trade across "Bharat."

​The Big Picture: What This Flexibility Means for India’s Digital Future

​By moving from a rigid zero-MDR law to a flexible, notification-based power, the Finance Ministry gains a middle-ground tool:

• Ensuring Infrastructure Investment: Payment apps and banks get a clear revenue pipeline to upgrade servers and expand fraud prevention, supporting the next growth phase toward 100 billion monthly transactions.

• Preventing Disruption to Small Traders: By controlling charges through selective notifications rather than flat fees, the government can protect small traders while monetizing high-value commercial transactions at big retail chains.

• Agile Policy Adjustments: If a specific sector faces financial strain or needs a boost, the government can adjust or waive payment charges via notification without waiting for full legislative amendments in Parliament.

​The Bottom Line

​The government’s new amendment is about long-term system stability rather than charging everyday users.

​By replacing a blanket zero-MDR law with flexible notification powers, the Finance Ministry can ensure that large commercial platforms help pay for the massive digital infrastructure powering UPI, while keeping daily payments free and seamless for the common person and neighborhood shopkeeper.