Context: The Central Government clarified that everyday Person-to-Person (P2P) and general merchant UPI transactions will remain completely free for citizens.
- The statement follows public concerns over proposed amendments to Section 10A of the Payment and Settlement Systems Act (PSS Act), 2007, via the Taxation and Other Laws (Amendment) Bill, 2026.
About The Payment and Settlement Systems Act, 2007:
What It Is?
- The Payment and Settlement Systems Act, 2007 (PSS Act) is the primary legislative framework governing and regulating all electronic, digital, and traditional payment and settlement systems operating within India. Assented to in December 2007, it formally came into force on August 12, 2008.
Aim: To establish a sound legal framework for the regulation, supervision, netting, and final settlement of payment systems in India, designating the Reserve Bank of India (RBI)—assisted by the Payments Regulatory Board (PRB)—as the statutory supervisory authority.
Key Features of the Act:
- Statutory Designation of RBI: Designates the Reserve Bank of India as the sole authority to regulate, license, inspect, and issue directions to all payment system operators (PSOs) in the country.
- Mandatory Authorization: Prohibits any entity—domestic or foreign—from commencing or operating a payment system (including card networks, PPI wallets, and money transfers) without explicit prior authorization from the RBI.
- Legal Recognition of Netting & Settlement Finality: Ensures that gross or net financial settlements become final and irrevocable once determined. It explicitly protects settled transactions and collateral appropriations from being unwound, even if a participating entity becomes insolvent.
- Penalties for Dishonour of Electronic Fund Transfers (EFT): Section 25 makes the dishonour of electronic fund transfer instructions (due to insufficient funds) a punishable criminal offence, providing legal parity with cheque-bouncing cases under the Negotiable Instruments Act, 1881.
- Standards & On-Site Inspection Powers: Grants the RBI broad statutory powers to lay down technical standards, audit computer systems, call for operational returns, and conduct on-site inspections of PSOs in India or abroad.
- Dispute Resolution Mechanism: Establishes a structured adjudication framework for resolving disputes between system participants, between participants and system providers, or involving the RBI itself.
Recent Proposed Amendment for UPI (2026):
- Amendment to Section 10A: Proposed via the Taxation and Other Laws (Amendment) Bill, 2026, modifying Section 10A of the PSS Act.
- Enabling Provision for Merchant Discount Rate (MDR): Replaces rigid prohibition mechanisms to create an enabling statutory framework. Once passed, it empowers the UPI and Services Steering Committee (headed by the National Payments Corporation of India – NPCI) to determine nominal, threshold-based MDR if necessary in the future.
- Protections Retained:
- Free for Citizens: P2P transactions and everyday consumer merchant payments remain 100% free with zero charges for citizens.
- Capped & Targeted MDR: Any future fee structure will apply only to specified large-merchant transactions above a high threshold, levied at nominal rates significantly lower than standard credit/debit card charges.
