Reserve Bank of India Governor Sanjay Malhotra said on Wednesday that discussions on reintroducing the merchant discount rate (MDR) for UPI transactions are premature. The comments came after Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to the Payment and Settlement Systems Act, 2007, potentially allowing MDR charges on digital payments again, according to medianama.com.
Governor Malhotra stated that the government is still working on the amendment and emphasised the importance of maintaining and strengthening the public digital payments infrastructure. He noted that the costs of digital transactions must be borne by someone, and ultimately, consumers pay in some form, either directly or indirectly through the broader economy. These remarks followed the Monetary Policy Committee meeting on Wednesday, as reported by medianama.com.
The government’s move to amend the law comes after a period during which banks and payment firms were prohibited from charging MDR on specified digital transactions, supporting the rapid adoption of UPI payments. The amendment could mark a shift in policy, potentially impacting transaction costs for merchants and consumers. Finance Minister Sitharaman’s bill removes references to provisions in the Income-tax Act that previously barred MDR charges, signaling a possible return of merchant fees on UPI transactions, medianama.com detailed.
The Taxation and Other Laws (Amendment) Bill, 2026, was introduced in the Lok Sabha on Tuesday, setting the legislative process in motion for these changes. RBI Governor Malhotra’s comments highlight the ongoing nature of discussions and the government’s focus on balancing cost recovery with the efficiency of the digital payments system.