Lok Sabha Passes Bill Allowing MDR on UPI and Other Digital Payments – Implications for UPSC

The Lok Sabha approved the Taxation and other Laws (Amendment) Bill, 2026 on 6 August 2026 . The amendment removes the ban on banks and payment service providers (PSPs) from levying a MDR on transactions made through the UPI and other notified electronic modes. Key Developments The bill was passed by voice vote after the House resumed at 2 p.m., with no debate due to opposition slogans. Finance Minister Nirmala Sitharaman moved the amendment to Section 10A of the Payment and Settlement Systems Act, 2007 . The amendment substitutes the phrase “electronic modes of payment prescribed under section 269SU of the Income‑tax Act, 1961” with “one or more electronic modes of payment as the central government may, by notification, specify”. It aims to create a sustainable revenue model for banks, PSPs, and payment‑infrastructure firms while keeping digital payments affordable for consumers and small businesses. Important Facts Until now, Section 269SU required firms with turnover above Rs 50 crore to accept payments via RuPay debit cards and BHIM‑UPI QR codes, but banks could not charge any fee for these modes. Real‑time gross settlement (RTGS) and NEFT already attract service charges, but UPI transactions have been free of charge. The RBI governor Sanjay Malhotra said on 5 August 2026 that discussing MDR is premature, but acknowledged that someone must bear the cost of payment infrastructure. UPSC Relevance This development touches on several GS topics: the regulatory framework of digital payments (GS3), the role of Parliament in amending statutes (GS2), and the fiscal implications of charging fees on a mass‑adopted platform (GS3). Aspirants should understand how the amendment balances financial inclusion with revenue generation, and how it may affect the government's push for a cash‑less economy. Way Forward Implementation will require detailed notifications by the central government specifying which electronic modes will attract MDR. Monitoring mechanisms must be set up to ensure that fees remain “small” and do not deter usage. Future debates in Parliament and guidance from the RBI will shape the final fee structure. UPSC candidates should watch for subsequent rules, as they will illustrate the interaction between legislation, regulatory bodies, and market participants.