Lok Sabha approves bill allowing banks to levy fees on large UPI payments

The lower house cleared an amendment to the Payment and Settlement Systems Act, permitting banks and payment providers to charge a merchant discount rate on UPI transactions above Rs 2,000, while consumer use remains free.

The Lok Sabha has approved a bill that amends the Payment and Settlement Systems Act, 2007, allowing banks and other payment service providers to impose a merchant discount rate on certain UPI transactions. Under the proposed framework, an MDR ranging from 0.25% to 0.4% could be applied to business payments above Rs 2,000, while peer-to-peer transfers will remain fee-free. Finance Minister Nirmala Sitharaman emphasized that the charge is levied on merchants to support investment in payment infrastructure and security, not on end users.

Routine consumer purchases such as groceries, milk, auto-rickshaw or taxi fares are expected to be excluded. The Payments Council of India answered seven common questions, confirming that UPI stays free for consumers and that small shopkeepers will not face fees. The move aims to sustain the rapidly growing UPI ecosystem, which processes billions of transactions each month.