A Blanket Ban Becomes a Discretionary List
On August 4, 2026, Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha, tracked by PRS Legislative Research as a Finance Ministry bill amending, among other statutes, the Payment and Settlement Systems Act, 2007 (PRS India bill track; full bill text). Buried in that package is a rewrite of Section 10A — the provision that has barred banks and payment system providers from charging Merchant Discount Rate (MDR) on UPI and RuPay debit card transactions since January 1, 2020 (Crypto Briefing).
The mechanism matters more than the immediate effect. The old Section 10A was a self-executing prohibition: no bank could impose "any charge" on the electronic modes notified under Section 269SU of the Income-tax Act. The amendment swaps that automatic bar for a framework in which the Central Government notifies, by executive order, which payment modes stay fee-exempt — implying anything left off that list can lawfully be charged. The bill itself sets no rate and imposes no immediate fee; it removes the statutory guarantee and hands the pricing decision to the executive. Reporting so far indicates the intent is to spare peer-to-peer transfers and small merchants while opening the door to MDR on larger commercial UPI transactions, with the amendment also stripping the direct cross-reference to the Income-tax Act's Section 269SU list (The Tribune).
Steelmanning the Case for Reintroducing MDR
The zero-MDR mandate was never free — it just moved the cost off merchants' books and onto banks, PSPs, and eventually the exchequer. UPI processed roughly 241.6 billion transactions worth about ₹314.2 lakh crore in FY2026, a 30% jump in volume year-on-year, and July 2026 alone set a record at 23.7 billion transactions worth ₹29.9 lakh crore (Crypto Briefing). That scale has to be underwritten by someone. A Parliamentary Standing Committee report in March 2026 called the zero-MDR model "unsustainable" and said government subsidies cover only 11-14% of actual infrastructure cost, urging a viable revenue stream (officenewz). The Payments Council of India made the same case in a March 2025 letter, estimating UPI's annual maintenance cost at roughly ₹10,000 crore against a government incentive outlay of about ₹1,500 crore, and proposed reintroducing MDR on RuPay debit cards broadly plus a roughly 0.3% rate for large UPI merchants (officenewz). That is a legitimate, evidence-backed argument: an infrastructure this systemically important cannot run indefinitely on subsidies that never scaled with volume, and a modest, transparent fee on high-value commercial transactions is a defensible way to fund resilience, fraud controls, and settlement capacity without touching the retail user experience that made UPI ubiquitous in the first place.
Where the Design Falls Short
The problem isn't that India is reconsidering zero-MDR — six years and 30%-plus annual growth is a reasonable point to revisit a subsidy's sustainability. The problem is how the reversal is being executed. Handing the Central Government the power to redraw the fee-exempt list by notification, rather than legislating a capped, formula-based MDR with mandatory consultation, converts a predictable statutory right into a discretionary policy lever that can move with each budget cycle or political calculation. Fintech companies, payment aggregators, and the small merchants who built businesses around a permanent zero-cost promise now have to price in the risk that the exemption list changes on notice, with no guaranteed process for stakeholder input before it does. That uncertainty is itself a tax on innovation — it raises the cost of capital for exactly the QR-code and merchant-acquiring startups that zero-MDR was designed to grow.
The fix is not to preserve the blanket ban indefinitely; it is to legislate the boundaries of the new discretion. A statutory cap on any reintroduced MDR, a requirement that changes go through a published RBI consultation with a comment period, and a sunset or periodic review clause would deliver the committee's stated goal — a sustainable UPI — without converting a widely-relied-upon payment guarantee into something that can be redrawn by Gazette notification alone. Officials have said any actual levy will still require a Gazette notification and subsequent RBI guidelines, which offers some procedural friction, but friction is not the same as a binding rule merchants and platforms can plan against years in advance.
What to Watch
The bill does not yet set a fee — that decision sits with whatever notification follows passage, and early signals point toward exempting P2P transfers and small merchants while targeting higher-value commercial transactions. The real test is whether the government pairs this new discretion with the rate caps and consultation process the Standing Committee's own sustainability argument implies, or whether it treats Section 10A's rewrite as a blank check to reprice UPI unilaterally whenever the exchequer needs it. India built the world's largest real-time payments network partly by making its rules boringly predictable. Trading predictability for flexibility, without also legislating limits on that flexibility, risks the wrong kind of surprise for the ecosystem that made UPI a genuine global export.