UPI Payments To No Longer Be Free? What New Tax Bill Says About Payment Charges, MDR And Foreign Investors

Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, has raised fresh questions over whether UPI transactions could attract charges. Finance Minister Nirmala Sitharaman, however, clarified that the legislation does not impose any tax or transaction fee on UPI users, and assured that digital payments will continue to remain free for consumers.

Sitharaman said UPI has remained free for consumers since its launch and will continue to remain so.

“Will consumer pay any UPI charge - No," she said, adding that every Indian would continue to use the instant digital payment system without paying a transaction charge.

What does the Bill say about UPI?

Finance Minister Nirmala Sitharaman assured consumers and small merchants that they would not have to pay Merchant Discount Rate (MDR) charges on UPI transactions while passing the Taxation and Other Laws (Amendment) Bill, 2026.

Sitharaman said the UPI-related amendment is only an enabling provision and does not itself impose any tax or transaction charge on users.

"The enabling provision that we are bringing in today does not impose any tax or transaction charge on UPI users," Sitharaman said, adding that it enables the government to specify through notification the electronic payment modes that will continue to receive statutory protection against charges.

She also said that no MDR framework has yet been finalised.

Sitharaman said, "Small merchants remain central to UPI's inclusive growth. We are not going to impose any MDR on them. We don't intend to."

She further said consumers would continue to make UPI payments without paying transaction charges.

What else does the Bill propose?

Beyond UPI, the Taxation and Other Laws (Amendment) Bill, 2026, includes a range of tax and investment-related measures aimed at improving the ease of doing business and attracting investment into India.

The changes include tax exemptions linked to specified data-centre services in India, incentives for global diamond-trading activities, measures to support electronics manufacturing and the relaxation of conditions for certain eligible investment funds.

Sitharaman said the measures would help strengthen India's domestic ecosystem and attract greater investment in key sectors.

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She stressed that "the investment, the assets, the employment, and also the profit will rest with Indian companies on account of data centre reforms."

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What does the Bill mean for foreign investors?

The legislation also includes tax exemptions for certain foreign institutional investors and the Bank for International Settlements on income earned from investments in government securities.

In addition, the Bill introduces changes relating to rough-diamond trading and business trusts, aimed at providing greater clarity and easing certain conditions for investment and business activity.

In short, the new bill does not introduce a transaction charge on consumers, and UPI payments will continue to remain free for them.