IBNS-CMEDIA: The government has opened the door to introducing a nominal Merchant Discount Rate (MDR) on a limited set of UPI merchant transactions above a certain threshold, while assuring users that consumer and person-to-person payments will remain free.
Clarifying its position on MDR, the government said the charges, if introduced, would apply only to a limited category of merchant transactions above a specified threshold and would be levied at a nominal rate.
“As and when MDR charges are introduced, they will apply only to a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs,” the government said in a statement.
It further clarified that the vast majority of UPI transactions would continue to remain free for merchants.
“MDR, if introduced, will only be threshold-based and not blanketly levied to all,” the statement said.
Will UPI users be charged?
According to the government, consumer payments and person-to-person (P2P) UPI transactions will continue to remain free.
The proposed framework is aimed primarily at certain merchant transactions and would not amount to a blanket charge on UPI payments.
The Ministry of Finance said that once Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007, the “UPI and Services Steering Committee”, headed by the National Payments Corporation of India (NPCI), will decide on the MDR framework.
Why is the Payment and Settlement Systems Act being amended?
The recent proposed amendment to the Payment and Settlement Systems Act has triggered debate, with concerns that it could lead to charges being imposed on ordinary UPI users.
The government, however, said the amendment is an enabling provision intended to support the long-term sustainability, technological development and resilience of the UPI ecosystem.
UPI growth and rising costs
UPI has witnessed exponential growth in transaction volumes, requiring continuous investment in infrastructure, cybersecurity and fraud-prevention systems.
The government said the amendment would help create a framework capable of supporting the next phase of UPI’s growth while addressing emerging technological and security risks.
Encouraging competition
The government also highlighted the need to encourage more companies to expand their operations in the digital payments ecosystem.
According to the government, a sustainable revenue model could help increase competition and encourage further investment in UPI-related services and infrastructure.
Why UPI may need a sustainable revenue model
The government said continued reliance on subsidies alone may not be viable for the next phase of UPI’s expansion.
It said a balanced framework is needed to ensure that UPI remains robust, inclusive and future-ready, while keeping consumer and person-to-person payments free.
For now, there is no blanket MDR on UPI transactions. Any future MDR would be limited to specified merchant transactions above a threshold and would be decided under the framework proposed in the legislation.
