Taxation and Other Laws (Amendment) Bill 2026

The Taxation and Other Laws (Amendment) Bill 2026, recently passed by the Lok Sabha, introduces key changes to the legal framework governing UPI transactions, particularly addressing the issue of the Merchant Discount Rate (MDR).

Key Provisions

• Merchant Discount Rate (MDR):
  • Allows for a processing fee that merchants pay to banks for transactions.
  • Previously, there was no provision for transaction fees on UPI, crucial for system development.
• Transaction Dynamics:
  • Over 95% of UPI transactions are below ₹2,000 and remain exempt from MDR.
  • Transactions above ₹2,000, which account for more than two-thirds of UPI transaction value, may benefit from MDR.
  • MDR can enable the growth of value-added credit services.

Strategic Implications

• Competitive Edge:
  • UPI must maintain its early lead over potential rivals by adopting transparent and competitive pricing.
  • Its scale allows banks to operate at lower MDR levels compared to credit card networks, preserving its advantage.
• Global Integration:
  • UPI will link with international digital payment platforms, many of which charge fees, necessitating a cap on MDR to maintain competitiveness.

Future Prospects

• Revenue Streams:
  • New credit service revenues may offset transaction fees, supporting UPI's financial sustainability.
• Global Competitiveness:
  • With around 100 countries developing instant payment systems, India aims to adopt the majority approach of fee-based platforms.
  • Maintains benefits from UPI's public digital infrastructure while ensuring long-term competitiveness.