UPI Continues to be Free, But Law Allows Fee Later

Which merchants could actually end up paying UPI fees?

Only large merchants, not small shopkeepers. The proposal on the table would apply MDR only to businesses with annual turnover above roughly ₹1-1.5 crore, and only on UPI payments over ₹2,000 within that. About 90% of merchants accepting UPI fall into the small enterprise category and would stay exempt, per the plan reported so far.

How much would the fee actually be per transaction?

Nothing is finalised, but one option floated is a charge of 5 to 7 basis points, meaning 0.05% to 0.07% of the transaction value, on qualifying large-merchant payments. That is well below the 0.30% MDR the Payments Council of India had earlier recommended for large merchants, and far below the up-to-0.90% MDR already applied to debit cards.

Why did the government scrap this fee back in 2020?

The government made UPI and RuPay debit card transactions zero-MDR from January 2020 specifically to push people onto digital payments instead of cash, changing the law under the Payments and Settlement Systems Act and the Income-tax Act. Since then it has paid banks and payment firms incentives instead of letting them charge merchants directly, worth about ₹1,500 crore in one recent year alone.

Why are banks pushing to bring the fee back now?

UPI volumes have exploded, from about 20 million transactions a year in FY17 to nearly 242 billion in FY26, worth around ₹314 lakh crore. Banks and payment firms say the government's incentive payments never covered the real cost of processing that volume, so a small merchant fee on big transactions is the fix industry has been asking for as usage keeps scaling up.

Why was this tax change first brought in as an ordinance?

The government issued the change as an ordinance on June 5, 2026, using emergency powers under Article 123(2) of the Constitution, which let it take effect immediately without waiting for Parliament. The official reason given was that global trade disruptions and economic shocks created urgent uncertainty, requiring immediate tax measures rather than going through the normal, slower process of passing a bill first.

What does the Constitution require after an ordinance is issued?

Under Article 123(2), an ordinance is a temporary law the President issues when Parliament isn't sitting. It cannot stand permanently, the government must bring a proper Bill to replace it. That is why the Taxation and Other Laws (Amendment) Bill, 2026 exists: it repeals the June 5 ordinance and re-enacts its provisions as a regular Act, adding some further changes along the way.

What specific economic problem did the government cite for the rush?

The Bill's Statement of Objects and Reasons pointed to recent geopolitical developments disrupting global trade and supply chains, saying this created uncertainty in the international economy. It said immediate tax measures were needed to cushion the impact of these external shocks, keep the domestic economy stable, and support sectors hit by global conditions, all framed as urgent enough to bypass the normal legislative timeline.

How much foreign money has this broader push already pulled in?

A tax partner at Grant Thornton Bharat described the ordinance as short-term policy support later widened into a longer package covering fund managers, electronics manufacturing, data centres and diamond trading, aimed at global capital and long-term tax certainty. Alongside it, government measures on foreign exchange swaps and bond access had drawn net inflows of $40.81 billion by July 31, with reserves rising to $682.354 billion in the week to July 24.

What is the Ram temple donation row disrupting Parliament?

The Opposition, led by Congress, alleges thousands of crores in donations to Ayodhya's Ram temple were stolen, with daily collections reportedly falling from ₹10-15 lakh to about ₹80,000 after the claims surfaced. They are demanding the temple trust be dissolved and a Supreme Court-monitored probe, disrupting Parliament sessions including the debate where Sitharaman denied UPI would carry a transaction charge.

What action has already been taken on the donation theft claims?

A police complaint was filed on June 25 after the allegations surfaced. Eight men were arrested, including the former driver of trust general secretary Champat Rai, who then resigned along with trustee Anil Mishra. The Supreme Court is separately hearing petitions seeking a CBI probe and audits of the trust, and has asked Uttar Pradesh whether the initial investigating team should be reconstituted.

Why is the temple row tangled up with the separate Shah protest row?

Two unrelated Opposition grievances, the temple donations and the July 20 police crackdown on paper-leak protesters, are being raised together to block the same sittings. Congress wants Home Minister Amit Shah to personally explain police action, including alleged pellet gun use, while also pressing the temple demand, so both issues repeatedly stall the same bills and force the same adjournments.