According to the 'Taxation and Other Laws (Amendment) Bill, 2026' introduced in the Lok Sabha on Tuesday, the central government will have the power to decide on the levy of Merchant Discount Rate (MDR) on digital transactions including UPI. This new bill, which amends the Payment and Settlement Systems Act, 2007, does not directly impose MDR on UPI. However, it will allow the government to decide which digital payments will be charged and which will remain free in the future.

This will address the long-standing demand of banks and payment companies that providing digital transactions completely free of cost is causing them a huge financial burden and that this needs to change. A year ago, there were reports that the Finance Ministry and the Reserve Bank of India were considering imposing MDR on UPI transactions of large merchants, but the government had denied it at that time.

Apart from digital transactions, the new bill proposes other important amendments to the Income Tax Act and the Finance Act. The new bill aims to extend tax exemptions for the electronics manufacturing sector till March 31, 2041, and provide more tax benefits to foreign investors and the diamond trade.