Critically analyse the amendments proposed by the Taxation and Other Laws (Amendment) Bill, 2026 to the payment ecosystem.

Since 1 January 2020, Merchant Discount Rate (MDR) on BHIM-UPI and RuPay debit cards has been zero, secured through Section 10A of the Payment and Settlement Systems Act, 2007 and Section 269SU of the Income-tax Act [3]. The 2026 Bill recasts this architecture — an enabling shift whose merits are real but whose equity risks demand calibration.

What the Bill changes

• Recasts Section 10A, PSS Act 2007: instead of a blanket statutory bar, the Centre may now notify which electronic payment systems enjoy zero MDR [1].
• Passed by Lok Sabha, it authorises government to permit banks and payment service providers to levy charges on notified digital payment modes [2].
• The levy is not automatic — it requires a fresh notification, with rate-setting left to the NPCI-anchored UPI steering mechanism [1].

Merits

• Fiscal sustainability: zero-MDR shifted infrastructure costs to the exchequer via recurring subsidies — the Cabinet approved a ₹1,500 crore incentive scheme for low-value BHIM-UPI (P2M) transactions [4]. A user-pays element reduces this dependence.
• Ecosystem viability: a revenue stream funds cybersecurity, fraud prevention and capacity as volumes scale, and attracts new players rather than concentrating the market in a few apps.
• Calibrated design: government and industry have clarified that consumers and small merchants remain free, with any MDR confined to large merchants above a threshold [5].

Concerns

• Inclusion risk: merchants may pass costs to consumers, eroding UPI's near-zero-friction advantage that drove mass adoption [5].
• Policy credibility: repeated Finance Ministry assurances of "no plan" to levy MDR [3], followed by this amendment, unsettle expectations.
• Regulatory ambiguity: an enabling provision without notified rates leaves merchants and PSPs planning in uncertainty.

On balance, the Bill wisely converts an inflexible statutory prohibition into a calibrated policy lever. Its success now rests on transparent, threshold-based notification that shields small merchants and consumers — sustaining UPI as Digital Public Infrastructure serving financial inclusion, not merely as a revenue base.