Pay wall: On a charge on UPI transactions
The government’s decision to allow banks and payment processors to levy a charge on UPI transactions , while still pending, has already led to several policy questions. No official decision has yet been announced, but the preparations are apparent. The only official change that has been made is the amendment to the Payment and Settlements Systems Act that will now allow the government to notify which types of transactions can attract a charge. This was done through the Taxation and Other Laws (Amendment) Bill, 2026, which was passed in the Lok Sabha recently without a debate. Before this law, UPI and RuPay debit card transactions were expressly exempt from any charges. Government sources say that the charge could be allowed only for transactions conducted by large merchants with turnovers of more than ₹1 crore-₹1.5 crore and for transactions above ₹2,000 in value. This would limit the charge to only about 5% of all UPI transactions. However, the amended law gives the government the ability to widen this scope. The fear also is that merchants will pass this cost on to consumers, who will move back to cash, which remains free to use. That said, the issue must also be looked at from the point of view of the payment ecosystem. UPI was made free in 2020. The payments players have argued that they have been bearing the cost of maintaining and running UPI since then. As Reserve Bank of India (RBI) Governor Sanjay Malhotra recently said, “somebody has to pay” for UPI. Presumably, he meant that “somebody” should no longer be the payment processors or banks. However, the burden of the cost has not solely been borne by these players. Taxpayers are already bearing some of it. In 2021, the government introduced a scheme where it paid these payment processors and banks a subsidy to partially cover the cost of processing transactions up to ₹2,000 done by small merchants. The government has already paid about ₹11,349 crore on this, with another ₹2,000 crore budgeted for 2026-27. The question is whether consumers and merchants should be asked to pay an additional charge when some of their taxes are already being used for this purpose. There is also some anger over the perception that the government pushed people towards UPI through demonetisation, only to now allow it to become chargeable. Finance Minister Nirmala Sitharaman has argued that such a charge will help payment players invest more on infrastructure, innovation, and security. The RBI has the resources to pay for UPI’s development. Using this would entail a small reduction in the vast surplus that it transfers to the Centre each year, but it would save the government from an increasingly unpopular decision. Published - August 08, 2026 12:20 am IST Read Comments Copy link Email Facebook Twitter Telegram LinkedIn WhatsApp Reddit READ LATER SEE ALL Remove Related Topics government / banking / electronic commerce / law / Reserve Bank of India / ministers (government) / Demonetisation
- 1The episode illustrates how executive rule-making power, delegated through amendments like the one to the Payment and Settlement Systems Act, 2007, allows the government to notify significant public-facing decisions such as UPI charges without fresh parliamentary debate on specifics. This delegated legislation model, common in Indian governance, raises accountability concerns since Parliament approves an enabling framework while the executive fills in operative details later. Students should note this pattern recurs across GST rate notifications and telecom spectrum charges, making delegated legislation versus parliamentary oversight a recurring CLAT theme.
- 2Since demonetisation in November 2016, India's digital payments ecosystem has been actively promoted by the government as a policy priority, with UPI transaction volumes crossing billions of transactions a month by the mid-2020s. The proposed shift from a free to a chargeable UPI model marks a potential reversal of this decade-long push toward a cashless economy, and critics worry it could push low-value transactions back to cash, undermining financial inclusion goals tied to schemes like the Jan Dhan-Aadhaar-Mobile trinity. This tension between digital adoption and commercial sustainability for payment operators is a live domestic policy debate.
- 3The relevant statute here is the Payment and Settlement Systems Act, 2007, which designates the Reserve Bank of India as the principal regulator of payment systems in India, including UPI, which is operated by the National Payments Corporation of India. Any merchant discount rate or transaction charge must be notified under powers derived from this Act, and the past exemption for UPI and RuPay debit transactions was itself a government notification, meaning it could be withdrawn the same way. This shows how regulatory certainty in fintech can shift through subordinate legislation rather than primary law.
- 4Under the subsidy scheme launched in 2021, the government has already disbursed about ₹11,349 crore to banks and payment processors to offset the cost of processing UPI transactions up to ₹2,000 for small merchants, with a further ₹2,000 crore budgeted for 2026-27. If a new merchant charge is layered on top of this taxpayer-funded subsidy, it effectively creates a dual payment structure, once through taxes and again through transaction fees, an economic inefficiency the editorial highlights as central to public discontent.