New Delhi: The Lok Sabha on Thursday passed the Taxation and other Laws (Amendment) Bill to amend the Payment and Settlement Systems Act, 2007 that authorises the government to permit banks and other service providers to levy charges on payments through unified payments interface (UPI) and other notified electronic payment modes.
The Bill was passed without a debate due to persistent sloganeering by the Opposition over various issues, including alleged theft of donation at the Ram temple in Ayodhya.
After the passage of the bill, the House was adjourned for the day.
Through the Bill, the government also seeks to attract more foreign capital, promote domestic electronics manufacturing and make it easier for foreign cloud companies to use Indian data centres by providing "process certainty".
Major propositions of the Bill
The amendment, passed by the House without discussion amid din, seeks to remove the existing legal provision that prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified electronic payment modes.
At present, banks and payment-system providers cannot directly or indirectly charge users for payment made through UPI and RuPay debit cards. The Bill proposes allowing the union government to decide, through notification, which electronic payment modes or transactions must remain free.
Real-time payments made through RTGS and NEFT are done by paying a service charge. However, UPI transactions have been exempted from such charges so far.
The government's approach aims to levy small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that drive the digital payments ecosystem.
"In the Payment and Settlement Systems Act, 2007, in Section 10A, for the words, figures and letters 'the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961', the words 'one or more electronic modes of payment as the central government may, by notification, specify' shall be substituted with effect from the date of publication of this Act in the Official Gazette," the Bill said.
Section 10A of the Payment and Settlement Systems Act, 2007 prohibits banks and system providers from imposing any charges on electronic payments while Section 269SU of the Income Tax Act requires large businesses with a turnover exceeding ₹50 crore to accept payments through specific electronic modes, including RuPay debit cards and BHIM-UPI QR codes.
As on date, no bank or payment system provider could impose any charge upon anyone, either directly or indirectly, for using the electronic modes of payment prescribed under Section 269SU of the Income Tax Act, 1961.
Speaking on the issue RBI Governor Sanjay Malhotra on Wednesday said it is "premature" to talk about MDR on payment through digital means.
Investment in public infrastructure like payments is necessary, he said, reiterating that someone will have to pay for it.
"The choices before us are simple: either the general public has to pay for it through taxes, or we have to levy the merchant discount rate (MDR), following the 'user pays' model."
"Right now the government is getting us the amendment. Costs have to be paid by someone. We all want this public infrastructure to strengthen and become more efficient, etc. We continue to do that. That is our focus right now; let us wait and watch for further developments," Malhotra said.
Levy of MDR has become a vexed issue in the country as bankers and other stakeholders in the payment industry have been pressing for it, and the government has so far not moved in the matter, and the usage of digital payments like the UPI platform has continued to grow at a handsome pace.
Some watchers have been expecting MDR to set in for UPI transactions above a certain value between a merchant and customer, and not in the case of peer-to-peer payments.
The important aspect is that someone has to pay for the service, the RBI Governor said.
Malhotra said under the 'use-pays' principle, it is the person or the merchant who is transacting who gets charged through the levy of MDR, but added that even if there is no MDR in place, the general public pays for it through the taxes.
"What is important is that we continue to invest and continue to find the means, whether it is MDR or others. Let us wait and see how the situation evolves," he said.
The Taxation and other Laws (Amendment) Bill, 2026, replaces the June 5 ordinance that provided I-T exemption to income from interest income and capital gains made by FPIs from investments in G-Secs.
The Bill proposes to make it easier for fund managers to relocate to India by cutting down on the list of conditions that these funds will have to satisfy to ensure that their global income does not get taxed in India.
To encourage domestic manufacturing by giving policy certainty, the Bill extends till 2040-41 the income tax exemption currently available to foreign companies that engage a contract manufacturer in India for producing electronics goods here.
Specified electronic items mentioned in the bill include mobile phones, laptops, personal computers, tablets, servers and their key parts and accessories.
To support component supply for electronics factories, the Bill proposes I-T exemption for 15 years till 2040-41 to foreign companies that store components in customs warehouses to further supply them to a contract manufacturer in India.
The Bill also removes the approval and notification requirements for foreign cloud companies that use Indian data centres. It also proposes that Indian data centres be run on a leased basis rather than only under direct ownership.
The proposals in the Bill share a single purpose of making India a more attractive and predictable place for global capital, manufacturing and business to come and stay, Finance Ministry sources said.
When the Chair called Revolutionary Socialist Party (RSP) Member N K Premachandran to move a statutory resolution disapproving the ordinance, he did not speak. The Bill was then put to vote and passed by a voice vote without a debate.
This is the seventh bill to be passed by the Lok Sabha in the ongoing Monsoon Session and the fifth one to be passed without a debate.
The House had discussed a bill to amend anti-paper leak law for 10 hours. A bill to make insult to national song 'Vande Mataram' a punishable offence was discussed briefly with two members participating in the debate.
Earlier in the day, Speaker Om Birla had adjourned the House till 2 p.m. soon after it met due to persistent sloganeering by opposition members. Thursday was the 14th day when the House could not complete the Question Hour in this session, which started on July 20.