The Union government is preparing to allow a levy on UPI transactions. While no final order has been issued, an amendment to the Payment and Settlements Systems Act has already been passed through the Taxation and Other Laws (Amendment) Bill, 2026. Earlier, both RuPay debit card and UPI payments were exempt from any fee.
Key Developments
- Government may charge only large merchants (annual turnover > ₹1‑1.5 crore) and transactions above ₹2,000, affecting roughly 5% of UPI volume.
- The amendment gives the government power to broaden the charge‑able base later.
- Payments players argue they have been subsidised by the state; a charge would shift part of the cost to users.
- Finance Minister Nirmala Sitharaman says the fee will fund infrastructure, innovation and security.
- RBI Governor Sanjay Malhotra warned that “somebody has to pay” for UPI, implying banks and processors should not bear the entire burden.
Important Facts
Since 2021, the centre has paid a subsidy of about ₹11,349 crore to cover processing costs for transactions up to ₹2,000 made by small merchants. An additional ₹2,000 crore is earmarked for the fiscal year 2026‑27. The subsidy reflects the government’s earlier push for digital payments after demonetisation, which encouraged citizens to adopt UPI.
Exam Relevance
This issue touches on several GS papers. GS 3 (Economy) examines the fiscal impact of subsidising digital payments and the role of the RBI in funding payment infrastructure. GS 2 (Polity) looks at legislative processes, as the amendment passed without debate, raising questions about parliamentary scrutiny. GS 4 (Ethics) invites discussion on fairness when taxpayers fund a service that may later become chargeable.
Way Forward
Policymakers must balance three objectives: (i) maintain UPI’s low‑cost advantage to keep cash‑less momentum, (ii) ensure sustainable financing for the payment ecosystem, and (iii) protect consumers from excessive fees. Options include a tiered fee structure limited to high‑value transactions, periodic review of the subsidy, or allocating a modest portion of the RBI surplus to cover core UPI costs. Transparent stakeholder consultation will be crucial to avoid backlash and to keep India’s digital payment agenda aligned with broader economic goals.