India's Finance Ministry has introduced the Taxation & Other Laws Amendment Bill 2026 to fund the nation's digital payments infrastructure [3].
The move aims to balance the sustainability of the Unified Payments Interface (UPI) with the need to keep basic financial services accessible to the general public.
Under the proposed legislation, person-to-person UPI transactions will remain free of charge [3]. However, the ministry is debating the implementation of merchant discount rates (MDR) to generate revenue. These fees would be applied to business transactions rather than individual transfers to ensure the ecosystem can continue to expand [3].
Since its launch in 2016, UPI has fundamentally altered how India handles money. The system now processes billions of transactions each month [1]. This scale has positioned India as a global leader in financial technology, with UPI currently driving 49% of all real-time transactions worldwide [2].
The Finance Ministry said the bill is necessary to maintain the digital public infrastructure that supports this volume. By targeting merchant fees rather than consumer transfers, the government intends to protect the low-barrier entry that fueled the system's rapid adoption.
The bill was tabled in Parliament as part of a broader effort to modernize tax laws, and financial regulations [3]. The government is seeking a sustainable funding model that does not discourage the use of digital payments among the poor or middle class, a key goal of the digital India initiative.
“Person-to-person UPI transactions will remain fee-free”
The shift toward merchant-funded models suggests that India is moving from a growth-at-all-costs phase of digital adoption to a sustainability phase. By insulating consumers from fees while taxing merchants, the government is attempting to treat the digital payment rail as a public utility. If successful, this model provides a blueprint for other developing nations to scale real-time payment systems without relying indefinitely on government subsidies.
