Govt opens door to MDR on select UPI merchant payments, users to face no charges
New Delhi, August 8
The government has opened the door to introducing a nominal Merchant Discount Rate on a limited set of UPI merchant transactions above a certain threshold, while assuring that consumers and person-to-person payments will continue to remain free.
The Ministry of Finance on Saturday said any future MDR on UPI would not be imposed across all merchant transactions and would be substantially lower than charges applicable to debit and credit card payments.
"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 Finance Ministry said in a release.
It added that the "vast majority" of UPI transactions will remain free for merchants and any MDR, if introduced, would be threshold-based rather than a blanket levy.
The clarification comes in connection with the Taxation and Other Laws (Amendment) Bill, 2026, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007.
Once the Bill is passed by Parliament, the "UPI and Services Steering Committee" headed by the National Payments Corporation of India (NPCI) will decide on MDR, if any, according to the Ministry.
The government stressed that the proposed amendment is an enabling provision and does not mean charges are being imposed on ordinary UPI users.
"UPI will remain free for citizens," the Ministry said, adding that all person-to-person transactions will also continue to remain free.
Explaining the rationale for the amendment, the government said rapidly growing UPI transaction volumes require continuous investment in cybersecurity, fraud prevention and infrastructure.
It also said a sustainable revenue framework was needed to encourage more companies to expand their operations in the digital payments ecosystem.
"Reliance on subsidies alone is not viable for the next wave of growth. A balanced framework is required to ensure that UPI remains robust, inclusive, and future-ready," the Ministry said.
The government said the amendment should be seen as part of its broader effort to make India's digital payment infrastructure sustainable, competitive and capable of supporting the country's expanding digital economy.
The Ministry also rejected reports suggesting that external influences were behind the proposed policy changes, calling such claims "unfounded, completely false and misleading."
— ANI
Reader Comments
As a small business owner, I'm relieved they said "threshold-based" and only for select transactions. Most of my customers pay small amounts via UPI, and any charge would hurt. But I do hope the government ensures the MDR stays truly nominal and doesn't creep up later. Trust but verify, as they say!
This is a sensible move. We can't expect NPCI to run a world-class payment system on subsidies forever. If big merchants pay a tiny fee, it will attract more investment and keep UPI robust. And the assurance that person-to-person transfers stay free is a huge relief for crores of users. Jai Digital India! 🇮🇳
I appreciate the transparency, but I'm a bit cautious. The government says "vast majority" will remain free, but what about the middle tier? A vegetable vendor or a small kirana store could fall into that "above threshold" category if they have a good day. We need clear numbers on what that threshold is. Otherwise, this feels like a foot in the door for future charges.
Having lived in the US, I've seen how payment apps nickel-and-dime users with fees. It's refreshing to see India prioritizing free access for everyday citizens while exploring sustainable revenue from larger merchants. This balanced approach could serve as a model for other emerging economies. Kudos to the Finance Ministry for the clear communication!
The clarification about "external influences" was much needed. There's so much misinformation floating around these days. I'm glad the ministry addressed it head-on. As long as UPI remains free for citizens
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