{"id":117657,"date":"2026-08-07T09:38:52","date_gmt":"2026-08-07T04:08:52","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=117657"},"modified":"2026-08-07T09:38:52","modified_gmt":"2026-08-07T04:08:52","slug":"indias-proposed-upi-transaction-levy","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/indias-proposed-upi-transaction-levy\/","title":{"rendered":"India&#8217;s Proposed UPI Transaction Levy: MDR, Trade Implications and Digital Payments"},"content":{"rendered":"<h2><b>India&#8217;s Proposed UPI Transaction Levy Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Finance Ministry has introduced the Taxation and Other Laws (Amendment) Bill, 2026, in Parliament, proposing changes to <\/span><b>Section 10A of the Payment and Settlement Systems Act, 2007<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This would allow banks and payment system providers to <\/span><b>charge fees on UPI and RuPay debit card transactions<\/b><span style=\"font-weight: 400;\">, which have so far been free.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The move comes even as India and the US work to finalise a trade deal \u2014 raising questions about a possible American trade angle behind the change.<\/span><\/li>\n<\/ul>\n<h2><b>What the Bill Proposes<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Amends the Payment and Settlement Systems Act, 2007 to enable a <\/span><b>Merchant Discount Rate (MDR)<\/b><span style=\"font-weight: 400;\"> on UPI transactions.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">MDR is a fee charged to merchants by banks for processing digital payments, covering infrastructure, settlement, and security costs.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The proposed structure: an MDR of 0.3% to 0.5%, applicable only on transactions above \u20b92,000, and only for larger merchants crossing a turnover threshold.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Small shopkeepers and everyday consumer-to-consumer transfers would remain untouched \u2014 this is a <\/span><b>fee on merchants<\/b><span style=\"font-weight: 400;\">, not a direct &#8220;UPI tax&#8221; on users.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Finance Minister Nirmala Sitharaman clarified that MDR applies only to merchants, not end users, and that the matter is not yet finalised, pending passage of the Bill.<\/span><\/li>\n<\/ul>\n<h2><b>Why UPI Currently Has No Charges<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Since January 2020, banks have been barred from charging merchants MDR on UPI transactions. The government instead compensates banks and payment firms through subsidies.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, as UPI transaction volumes have <\/span><b>exploded<\/b><span style=\"font-weight: 400;\"> \u2014 running into billions of transactions worth lakhs of crores monthly \u2014 these <\/span><b>subsidies have not kept pace<\/b><span style=\"font-weight: 400;\"> with the actual cost of running the network (servers, fraud checks, settlement infrastructure).\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This has revived the debate on reintroducing MDR. RBI Governor Sanjay Malhotra, responding to questions after the repo rate announcement, said it was too early to confirm consumer charges but noted that &#8220;<\/span><b>costs have to be paid by someone<\/b><span style=\"font-weight: 400;\">&#8221; \u2014 the government, merchants, or eventually customers.<\/span><\/li>\n<\/ul>\n<h2><b>The Hidden US Trade Angle<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While the Bill appears to be a domestic fiscal matter, it aligns closely with long-standing <\/span><b>US objections to India&#8217;s UPI ecosystem<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">In March 2026, the US Trade Representative (USTR) classified India&#8217;s digital payment policies as a <\/span><b>foreign trade barrier<\/b><span style=\"font-weight: 400;\">, citing the inability of US electronic payment suppliers to compete with RuPay on a level playing field within UPi.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">USTR flagged NPCI&#8217;s 30% market share cap on third-party UPI apps (originally due January 2023, now deferred to December 2026) as a concern \u2014 even though two US-owned firms, PhonePe (Walmart-backed) and Google Pay, together process over 80% of UPI transactions.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts note that US card companies <\/span><b>Visa and Mastercard have lost business<\/b><span style=\"font-weight: 400;\"> since UPI&#8217;s 2016 launch, as India&#8217;s zero-MDR, government-promoted RuPay network reduced their fee income from merchant transactions.<\/span><\/li>\n<\/ul>\n<h2><b>Pattern Across Other Countries<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The US has raised similar objections against several countries with domestic payment systems:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Brazil:<\/b><span style=\"font-weight: 400;\"> Imposed 25% tariffs under Section 301 of the US Trade Act, 1974, partly citing preferential treatment for Pix, Brazil&#8217;s free instant payment platform resembling UPI.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Indonesia<\/b><span style=\"font-weight: 400;\">: Required domestic transactions to be processed through local switching institutions; has now agreed to allow US payment networks cross-border access.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Vietnam:<\/b><span style=\"font-weight: 400;\"> Mandates domestic card transactions route through NAPAS (National Payments Corporation of Vietnam).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Turkey:<\/b><span style=\"font-weight: 400;\"> Favours its domestic card brand Troy over US suppliers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>GCC states<\/b><span style=\"font-weight: 400;\"> (Oman, Qatar, Saudi Arabia): Various measures restrict or localise US payment network access.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>China:<\/b><span style=\"font-weight: 400;\"> USTR alleges Beijing gives exclusive market access to China UnionPay while delaying licences for US payment firms.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>India&#8217;s Prior Concessions to the US<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Bill follows a pattern of India accommodating US digital-sector demands as part of the ongoing trade negotiations:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The last Union Budget announced a <\/span><b>tax holiday until 2047<\/b><span style=\"font-weight: 400;\"> for foreign companies setting up <\/span><b>data centres<\/b><span style=\"font-weight: 400;\"> in India.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">India abolished the 6% &#8220;<\/span><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/equalization-levy\/\" target=\"_blank\"><span style=\"font-weight: 400;\">Google tax<\/span><\/a><span style=\"font-weight: 400;\">&#8221; (equalisation levy) last year amid US tariff pressure, after Washington objected to digital services taxes affecting its tech giants like Apple, Amazon, Google, and Facebook.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>Conclusion<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">What appears to be a routine fiscal fix for UPI&#8217;s subsidy shortfall carries a deeper trade subtext.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As global payment ecosystems from Brazil to Turkey come under US scrutiny for favouring domestic platforms, India&#8217;s UPI levy signals how digital payment sovereignty is increasingly entangled with international trade diplomacy.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/upi-transaction-levy-trump-us-deal-india-10821226\/\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">IE<\/span><\/a><span style=\"font-weight: 400;\"> | <\/span><a href=\"https:\/\/www.ndtv.com\/business-news\/rbi-governor-sanjay-malhotra-charges-upi-transactions-mdr-digital-payments-11868593\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">NDTV<\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>India&#8217;s Proposed UPI Transaction Levy introduces merchant charges on select UPI transactions while reflecting broader trade negotiations and digital payment policy reforms.<\/p>\n","protected":false},"author":18,"featured_media":117664,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[9328,60,22,59],"class_list":["post-117657","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-indias-proposed-upi-transaction-levy","tag-mains-articles","tag-upsc-current-affairs","tag-upsc-mains-current-affairs-tag","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/117657","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=117657"}],"version-history":[{"count":2,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/117657\/revisions"}],"predecessor-version":[{"id":117659,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/117657\/revisions\/117659"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/117664"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=117657"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=117657"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=117657"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}