Parliament approved the Taxation and Other Laws (Amendment) Bill on Monday, with Finance Minister Nirmala Sitharaman using her reply in the Rajya Sabha to close down a week of speculation that payments made through the Unified Payments Interface were about to attract a charge.
The enabling provision we are bringing in does not impose any tax or transaction charge on UPI users.
The Bill had been passed by the Lok Sabha last week and was returned by the Rajya Sabha with a voice vote after a brief discussion.
What the amendment actually does
The provision at the centre of the row is an amendment to Section 10A of the Payment and Settlement Systems Act. The Finance Minister described it as an enabling provision only — it does not, at this stage, introduce a Merchant Discount Rate on consumers.
Whether an MDR is eventually introduced will be taken up by the UPI and Services Steering Committee of the National Payments Corporation of India now that Parliament has approved the amendment. No MDR framework has been finalised, she said.
What the government has promised on MDR
The Finance Ministry had issued a clarification over the weekend saying person-to-person UPI transfers will remain free under the new proposal. If an MDR is introduced, the government said, it would apply only to a limited set of merchant transactions above a specified threshold and would be levied at a nominal rate — significantly lower than the MDR that applies to debit and credit card payments.
Officials say more than 90 per cent of transactions, including everyday purchases of milk, vegetables and groceries, would fall outside any such charge. The government has stressed that any MDR would be threshold-based on high-value transactions rather than applied across the board.
Why the reaction was so sharp
UPI was launched in 2016 and has been free of charge for both merchants and citizens since January 2020. It is now the largest real-time interoperable payment system in the world, and free usage has become one of its defining political features.
That history explains the speed with which speculation about a fee spread, and why the government moved twice in three days to contain it. For small merchants in particular, the enabling provision leaves the underlying question open: the law now permits an MDR framework, even if none exists yet.
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