New Delhi, 10 August
Parliament Passes Taxation Bill: No UPI Transaction Charges for Users, Finance Minister Clarifies
Parliament on Monday, August 10, approved the Taxation and Other Laws (Amendment) Bill, with Finance Minister Nirmala Sitharaman clarifying that the legislation does not impose any UPI transaction charges or tax on users making payments through the Unified Payments Interface (UPI).
The clarification comes amid concerns and speculation that the proposed amendments could lead to a transaction fee being imposed on UPI payments.
The Bill, which was passed by the Lok Sabha last week, was returned by the Rajya Sabha after a brief discussion and a voice vote, completing the parliamentary approval process.
No UPI transaction charges imposed on users
Speaking in the Rajya Sabha, Finance Minister Nirmala Sitharaman said the proposed amendment to Section 10A of the Payment and Settlement Systems Act is only an enabling provision.
She clarified that the amendment does not introduce a tax or transaction fee for people using UPI to make payments.
The Finance Minister also said that the provision does not introduce a Merchant Discount Rate (MDR) charge on consumers at this stage.
This means that UPI transaction charges are not being imposed on users under the newly approved legislation.
No UPI MDR framework finalised yet
The Finance Minister further clarified that no MDR framework has been finalised so far.
Following Parliament’s approval, the UPI and Services Steering Committee of the National Payments Corporation of India (NPCI) will consider whether an MDR charge should be introduced and how such a system could work.
“So, no MDR framework has been finalised,” Sitharaman clarified.
The statement is significant because UPI users and merchants had raised concerns over reports suggesting that transaction charges could be introduced on digital payments.
Will UPI payments remain free?
According to the Finance Ministry, person-to-person UPI transactions will continue to remain free of charge under the proposed framework.
The government has also said that if MDR is introduced in the future, it would apply only to a limited category of merchant transactions above a specified threshold.
Any such charge would be imposed at a nominal rate and would be significantly lower than the MDR applicable to debit and credit card transactions, according to the government.
Therefore, the approved legislation does not mean that consumers will suddenly have to pay a fee every time they use UPI.
Most everyday UPI payments expected to remain free
The government has indicated that most routine UPI transactions will continue without an MDR charge.
This includes everyday purchases such as milk, vegetables and groceries, which form a significant part of India’s digital payment activity.
Government officials said that more than 90 per cent of transactions would not attract an MDR charge under the proposed arrangement.
The government has also clarified that any future MDR would be threshold-based, meaning it would target certain high-value merchant transactions rather than being applied to every UPI payment.
Why are UPI charges being discussed?
The debate over UPI transaction charges follows the proposed amendment to the Payment and Settlement Systems Act.
UPI has traditionally been promoted as a low-cost digital payment system, allowing consumers to transfer money and make purchases without paying a transaction fee.
The possibility of introducing MDR on certain merchant transactions has therefore raised questions about whether the cost could eventually be passed on to consumers.
The Finance Minister’s latest clarification aims to address those concerns by making clear that no UPI transaction fee is currently being imposed on users and that no MDR framework has yet been finalised.
UPI remains India’s leading digital payment system
The government highlighted that UPI was introduced in 2016 and has remained free of charge for merchants and citizens since January 2020.
The Unified Payments Interface has since become a major part of India’s digital payments ecosystem, enabling instant bank-to-bank transactions through participating payment applications and financial institutions.
The government has also highlighted India’s achievement in developing UPI into one of the world’s largest real-time interoperable payment systems.
What does the new Taxation Bill mean for UPI users?
For ordinary UPI users, the key takeaway is that there is currently no new UPI transaction charge or tax introduced by the Bill.
Person-to-person payments will continue to remain free, while any potential MDR for certain merchant transactions would require further consideration and a framework.
Until such a framework is finalised, consumers should not assume that they will be charged a fee for every UPI payment.
UPI charges: Key points
| Question | Answer |
|---|---|
| Is a UPI transaction fee being imposed now? | No |
| Will users pay tax on UPI payments under the Bill? | No |
| Are person-to-person UPI payments free? | Yes |
| Has an MDR framework been finalised? | No |
| Could MDR be introduced later? | It may be considered for certain merchant transactions |
| Will every UPI transaction attract a charge? | No |
| Could high-value merchant transactions be covered? | Yes, if an MDR framework is introduced |
The latest clarification means that UPI transaction charges are not being imposed on consumers at this stage. Any future MDR mechanism would depend on further decisions by the relevant authorities and the framework eventually approved.