The Lok Sabha on Thursday passed the Taxation and Other Laws (Amendment) Bill, 2026—often called the ToLA Bill—that opens the door for banks and payment firms to levy charges on certain UPI and RuPay debit card transactions. The Bill was cleared without debate amid Opposition protests on other issues.
What the Bill actually does
The Bill does not impose UPI transaction fees today. Instead, it amends the Payment and Settlement Systems Act, 2007to remove the existing legal bar that prevents banks and payment system providers from charging a Merchant Discount Rate (MDR) on notified digital payment modes.
In simple terms: until now, the law said “no MDR” on UPI and RuPay debit payments. The new law changes this to “the government can decide which modes can have MDR and when.” Any actual fee will come only through a future government notification.
Who may pay, and how much?
Media reports and industry sources suggest the government is considering a low MDR on person‑to‑merchant (P2M)UPI payments that meet two conditions:
- Transaction value above ₹2,000, and
- Merchant annual turnover above roughly ₹1 crore to ₹1.5 crore (some reports mention ₹50 crore for certain categories).
The proposed rate is described as very small—around 0.05%–0.07% in some discussions, and up to 0.25%–0.4% in others—far lower than typical card MDRs.
Person‑to‑person (P2P) transfers and payments to small merchants (kirana stores, street vendors, tea stalls) are expected to remain free under current proposals.
Will consumers pay directly?
The Bill does not require consumers to pay a fee for making UPI payments. The charge, if introduced, would be an MDR paid by merchants to their banks/payment processors. However, as with card payments, merchants may partly pass on such costs to customers through pricing.
Why change the law now?
UPI has grown rapidly under a zero‑MDR regime, with costs borne by banks, payment apps, and the government. Policymakers argue that some cost‑sharing is needed for long‑term sustainability as volumes surge. At the same time, officials stress that small merchants and everyday low‑value payments should stay protected.
Other key reforms in the same Bill
The ToLA Bill is not only about digital payments. It also:
- Amends the Income‑tax Act, 2025 and Finance Act, 2026, and replaces the Income‑tax (Amendment) Ordinance, 2026.
- Reinstates/clarifies tax exemptions for foreign portfolio investors (FPIs) on interest and capital gains from government securities, aiming to attract more foreign investment.
- Includes provisions to boost electronics manufacturing and make it easier for foreign cloud companies to use Indian data centres.
What happens next?
After the Bill becomes law, the government may issue notifications specifying:
- Which payment modes can carry MDR,
- Which transactions are exempt, and
- The applicable rates and thresholds.
Until such notifications are issued, UPI remains free for users and merchants as before.
Bottom line
- No immediate UPI fee for consumers or small merchants.
- Legal flexibility created to introduce a small MDR later on large merchant transactions above ₹2,000.
- P2P transfers and low‑value everyday payments expected to stay free.
- Bill also pushes foreign investment and electronics manufacturing via tax changes.
This story will evolve as the government issues detailed rules. For now, the change is about enabling future charges, not imposing them today.
 Bill, 2026 means for UPI fees, MDR, merchants and consumers.){kind=link}