A Six-Year-Old Law Guaranteed Free UPI Forever. Parliament Just Quietly Rewrote It.

On 14 September 2026, the Ministry of Finance notified S.O. 5067(E), the first use of a newly amended Section 10A of the Payment and Settlement Systems Act, 2007, confirming that UPI transactions and RuPay debit card payments up to Rs 2,000 will remain completely free of any charge. The part that matters more is what the notification does not protect. For the first time since India's zero Merchant Discount Rate mandate took effect on 1 January 2020, payments above that threshold are no longer shielded by an absolute statutory bar. The National Payments Corporation of India has since filled in the missing numbers, announcing that from 15 October 2026, a 0.4 percent MDR, capped at Rs 300 per transaction, will apply to select merchant payments above Rs 2,000. Here is how a law that stood untouched for six years was quietly rewritten, what it now actually permits, and what it means for merchants, banks and everyday UPI users.

Six Years of an Absolute, Statutory Zero

Since 1 January 2020, banks and payment system providers in India have been under a blanket legal prohibition on charging any Merchant Discount Rate on UPI transactions and RuPay debit card payments. This was not a voluntary industry practice or a temporary waiver. It was written into Section 10A of the Payment and Settlement Systems Act, 2007, and tied directly to Section 269SU of the Income Tax Act, 1961, the provision that required certain businesses to offer these specified low-cost digital payment modes to customers without imposing any charge. For six years, this made India's zero-MDR regime on UPI unusually rigid by global standards. Most countries treat merchant fees on digital payments as a matter of market negotiation or central bank guidance. India had frozen the position into statute, which is exactly why changing it required Parliament, not just a circular.

The Amendment Nobody Was Watching For

On 4 August 2026, during the Monsoon Session, Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha. Buried within it was a rewrite of Section 10A. The provision no longer refers to the electronic payment modes prescribed under Section 269SU of the Income Tax Act. Instead, it now empowers the Central Government to specify, by notification, whichever electronic modes of payment it chooses to exempt from charges. The practical effect of that single drafting change is significant. What had been a fixed, income-tax-linked guarantee became a discretionary power sitting with the executive. Parliament no longer needs to be involved every time the government wants to redraw which payments stay free and which do not. Some members flagged this concern during debate, worried the amendment was less about protecting free UPI and more about creating room to eventually charge for it. That concern turned out to be well founded within weeks.

What the September Notification Actually Does

The notification issued on 14 September 2026 uses this new power for the first time. It states that no bank or system provider may impose, directly or indirectly, any charge on a person making or receiving a payment through UPI or a RuPay debit card, but only for transactions up to Rs 2,000. Read carefully, the notification is not simply a renewal of the old zero-MDR promise. It quietly narrows it. Below Rs 2,000, the guarantee remains just as absolute and legally enforceable as before, arguably more so, since it is now anchored in a purpose-built provision rather than an income tax cross-reference. Above Rs 2,000, the statutory shield present since 2020 simply no longer applies, leaving the field open for someone to set a fee.

The Numbers NPCI Filled In

That someone turned out to be the National Payments Corporation of India, which announced the actual Merchant Discount Rate framework that will apply from 15 October 2026. Select person-to-merchant transactions above Rs 2,000 will attract a 0.4 percent MDR, with the total fee capped at Rs 300 once a transaction crosses Rs 75,000. A payment of Rs 3,000 will draw a fee of Rs 12. A payment of Rs 50,000 will draw a fee of Rs 200. A payment of Rs 1 lakh, which would otherwise generate a Rs 400 fee at a flat 0.4 percent, is instead capped at Rs 300. Certain sectors, including railways, telecom, insurance, fuel and utilities, will instead pay a flat Rs 5 per transaction above Rs 2,000 rather than the percentage-based rate. Small vendors who fall under the person-to-merchant QR category and receive up to Rs 1 lakh a month through UPI continue to pay nothing at all, with that eligibility checked on a rolling monthly basis and lost only after three consecutive months above the threshold.

Who Actually Pays

Both the Ministry's notification and NPCI's framework are explicit that consumers are not the ones footing this bill. Person-to-person transfers between individuals remain entirely free regardless of amount, and the new MDR applies only to person-to-merchant payments. NPCI has also clarified that the fee falls on the merchant accepting the payment, not the customer making it, and that UPI app providers are barred from layering any additional platform charge of their own on top. In other words, the six-year-old promise to the ordinary UPI user, that scanning a QR code costs nothing, survives largely intact. What has ended is the promise made to merchants that the payment rail underneath that QR code would always be free for them too.

What This Means for Merchants, Banks and Everyday Users

Businesses accepting UPI payments above Rs 2,000, particularly retailers, e-commerce platforms and service providers operating near or above that threshold, should start building the 0.4 percent cost into pricing and payment aggregator contracts well before 15 October 2026, and should check which sector-specific flat-fee category, if any, applies to them. Small vendors relying on UPI QR codes should track their monthly receipts carefully, since crossing Rs 1 lakh for three straight months moves them out of the fee-free category. Banks and payment aggregators will need to update settlement and disclosure mechanisms to correctly apply the new slabs and the sectoral exceptions. For consumers, very little changes in practice, but the broader lesson is a legal one. A right that Parliament once made absolute and immune from executive tinkering can, with the right drafting change, become a discretionary concession instead. Anyone relying on a statutory guarantee elsewhere in Indian law would do well to notice how quietly that shift happened here.

This blog is for general informational purposes and does not constitute legal advice. For guidance on payment systems regulation, fintech compliance, or contractual arrangements with payment aggregators, please contact our team.