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The Taxation and Other Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on 4 August 2026, proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007.
Section 10A currently imposes a blanket bar on any charge for prescribed electronic payment modes, which is what made UPI and RuPay debit card transactions zero-MDR from January 2020.
The amendment replaces the blanket bar with a framework under which the Central Government notifies which payment modes stay exempt from MDR.
The Bill does not itself levy any charge; a levy would require a separate government decision, and MDR is paid by merchants, not by consumers.
UPI recorded about Rs 29.9 lakh crore across more than 23 billion transactions in July 2026.
MDR is the fee a merchant pays, expressed as a percentage of the transaction value, for accepting a digital payment. It is not charged to the customer. The fee is shared among the parties that make the transaction work: the merchant's bank (the acquirer), the customer's bank (the issuer, which receives the interchange fee), and the network or platform operator. MDR is therefore the revenue model of a payment system. When MDR is set at zero by law, as it has been for UPI since 2020, the participants in the chain earn nothing from the transaction itself and the cost of running and expanding the system has to be met from elsewhere — in practice from government incentive payments and from banks' own budgets.
Simple Analogy: MDR is the toll a shop pays for using the payments highway. Making the toll zero brought enormous traffic onto the highway, but somebody still has to pay for the tarmac.
Payment and Settlement Systems Act enacted, making the RBI the regulator and supervisor of payment systems in India.
NPCI launches the Unified Payments Interface for instant bank-to-bank transfers.
Section 10A of the PSS Act takes effect, barring banks and system providers from levying any charge on prescribed electronic modes; MDR on UPI and RuPay debit cards becomes zero.
The Parliamentary Standing Committee on Finance reports that the absence of MDR makes the UPI ecosystem financially unsustainable.
The Taxation and Other Laws (Amendment) Bill, 2026 is introduced in the Lok Sabha, proposing to replace the blanket bar with a notification-based exemption framework.
Umbrella organisation for retail payments; operates UPI, RuPay, IMPS, AePS, NACH and FASTag. Set up in 2008 as a not-for-profit company under Section 8 of the Companies Act
Regulator and supervisor of payment systems under the PSS Act, 2007; authorises payment system operators and issues MDR-related directions
Moved the amendment; administers the incentive scheme that has been compensating banks for zero-MDR UPI transactions
Financial Awareness > Payment systems, NPCI products, RBI regulation
GS Paper III > Indian Economy > Digital payments, financial inclusion, government policies
General Awareness > Banking and economy
Consider the following statements: 1. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country. 2. NPCI has launched RuPay, a card payment scheme. Which of the statements given above is/are correct?
Answer: Both 1 and 2
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
Answer: Mobile wallets will not be necessary for online payments.
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?
Answer: The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
With reference to digital payments, consider the following statements: 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account. 2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication. Which of the statements given above is/are correct?
Answer: 1 only
A fee, expressed as a percentage of transaction value, that a merchant pays to its bank or payment service provider for processing a digital payment.
The provision, effective 1 January 2020, barring banks and system providers from imposing charges on prescribed electronic payment modes such as UPI and RuPay debit cards.
The portion of MDR that the merchant's bank passes to the customer's bank.
The acquirer is the merchant's bank; the issuer is the bank that issued the customer's account or card.
National Payments Corporation of India, the umbrella body for retail payments, which operates UPI and RuPay.