India has moved a step forward towards allowing merchant charges on United Payment Interface (UPI) transactions with the passing of the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, which proposed changes to the law governing digital payments, along with several tax reforms.
One of the key changes made by the legislation is to the Payment and Settlement Systems Act, 2007, which currently bars banks and payment service providers from charging users for certain electronic payment modes covered under the Income-Tax Act.
The Bill also proposed changes to the Income-tax Act, 2025 and the Finance Act, 2026. The changes are deemed to have come into force from April 1, 2026.
The amendment to the Payment and Settlement Systems Act now allows the Union government to decide, through a notification, which electronic payment modes will remain exempt from charges.
While the Bill does not mention UPI or introduce any charges, the amendment gives the government the legal power to decide in the future whether charges can be levied on specific digital payment modes.
According to reports the Union government is planning to implement a charge of around 0.3–0.5% MDR on higher-value transactions. The new amendment has created a legal framework for future charges aimed at making the digital payments ecosystem financially sustainable.
Apart from the payments law, the Bill also proposes changes to the Income-tax Act, 2025, to simplify rules for foreign investment funds and encourage fund management activity.
It extends tax benefits for foreign companies involved in electronics manufacturing until 2040-41, and tax exemptions for foreign diamond trading companies. It also provides tax relief for foreign companies storing electronic components in bonded warehouses for supply to Indian manufacturers.
According to the government, the amendments are aimed at improving ease of doing business, attracting investment, supporting manufacturing, and providing greater tax certainty amid global economic uncertainty.