The Payments Council of India (PCI) has confirmed that Unified Payments Interface (UPI) transactions will continue to be free for consumers despite recent legislative changes. This clarification came after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 6, which allows the government to impose a merchant discount rate (MDR) on certain electronic payments. The PCI emphasized that small merchants, including kirana stores and local vendors, will remain exempt from MDR charges, ensuring no cost burden on consumers, according to inc42.com.
The amendment to the Payment and Settlement Systems Act, 2007, enables the government to set an MDR ranging from 0.25% to 0.4% on business UPI transactions exceeding ₹2,000. Person-to-person UPI payments will continue to be exempt from MDR. The PCI clarified that any merchant service charges would be commercial agreements between merchants and payment service providers and would not be passed on to consumers. Finance Minister Nirmala Sitharaman also reiterated that MDR applies only to merchants, not end users, as reported by inc42.com.
This announcement comes amid concerns that reintroducing MDR could discourage digital payments adoption among consumers. By exempting consumers and small merchants from MDR, the government aims to balance revenue generation with promoting digital transactions. The move aligns with the broader goal of expanding digital payment infrastructure while protecting vulnerable merchants. The MDR framework is expected to affect larger business transactions, which aligns with global practices where merchant fees are standard for business payments, according to inc42.com.
The government is expected to finalize the MDR framework soon, with the rate set between 0.25% and 0.4% for business UPI transactions above ₹2,000. The Payments Council of India’s statement on X (formerly Twitter) on August 7 clarified that consumers will not bear any charges for using UPI, ensuring continued free access to digital payments for end users, inc42.com reported.