India's Proposed UPI Transaction Levy Sparks Debate
India's Proposed UPI Transaction Levy Sparks Debate
IN · Published Aug 7, 2026
The Indian government has proposed a UPI transaction levy under the Taxation and Other Laws (Amendment) Bill 2026, which was passed in the Lok Sabha on August 6,
The bill allows banks and payment service providers to impose Merchant Discount Rate (MDR) charges on UPI transactions above ₹2,000 for larger merchants. The government aims to address the growing costs of maintaining the digital payments infrastructure. Finance Minister Nirmala Sitharaman clarified that the charges would apply only to merchants and not consumers, ensuring that small merchants and low-value transactions remain unaffected.

Impact & Risks

The proposed levy could provide a sustainable revenue model for banks and payment service providers, enabling further investment in digital payment infrastructure. However, there are concerns that the removal of zero-MDR protections could lead to increased costs for merchants, which may be passed on to consumers. This could potentially impact the adoption of digital payments, especially among small businesses and low-income users.

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