The Lok Sabha has passed a Bill to amend the Payment and Settlement Systems Act, 2007, authorising the government to permit banks and other service providers to levy charges on payments through unified payments interface (UPI) and other notified electronic payment modes.
The Taxation and other Laws (Amendment) Bill, 2026, was passed without a debate due to persistent sloganeering by the Opposition over various issues, including alleged theft of donation at the Ram temple in Ayodhya. The amendment seeks to remove the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes.
Real-time payments made through RTGS and NEFT are done by paying a service charge. However, UPI transactions have been exempted from such charges so far. The proposed changes in Payment and Settlement Systems Act are part of comprehensive legislation on taxation, which was introduced in the House on Tuesday.
The government’s approach aims to levy small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that drive the digital payments ecosystem. RBI Governor Sanjay Malhotra on Wednesday said it is “premature” to talk about MDR on payment through digital means.
Levy of MDR has become a vexed issue in the country as bankers and other stakeholders in the payment industry have been pressing for it, and the government has so far not moved in the matter, and the usage of digital payments like the UPI platform has continued to grow at a handsome pace.
The Bill also proposes to promote domestic electronic manufacturing by giving policy certainty, extending till 2040-41 the income tax exemption currently available to foreign companies that engage a contract manufacturer in India for producing electronics goods here. Specified electronic items mentioned in the bill include mobile phones, laptops, personal computers, tablets, servers and their key parts and accessories.
To support component supply for electronics factories, the Bill proposes I-T exemption for 15 years till 2040-41 to foreign companies that store components in customs warehouses to further supply them to a contract manufacturer in India.
