UPI and the cost of policy reversal

The government has just given itself the legal room to tax the very payment habit it spent a decade building. Tucked into the Taxation and Other Laws (Amendment) Bill, 2026, is an amendment to Section 10A of the Payment and Settlement Systems Act, 2007, which would allow the government to notify charges on specified electronic payment modes. The number being proposed is a Merchant Discount Rate (MDR) of 0.25–0.5% on UPI transactions above ₹2,000. The official stand is that this threshold would touch only about five per cent of transactions by volume, sparing the milk-and-vegetable payments that make up the bulk of UPI’s use. But it would cover roughly 65% of transaction value, which is precisely why it matters.

This is not a small, technical fix. It runs counter to a decade-long policy commitment and deserves more scrutiny than it has received.