The finance ministry clarified that any future Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions will apply only to select merchants above a certain threshold, not to consumers. The statement came after the government introduced a bill allowing banks and payment processors to levy fees on merchants for UPI payments. Person-to-person UPI transactions will remain free, the ministry said, addressing concerns about potential costs passed on to users.
The clarification followed the introduction of the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to Section 10A of the Payment and Settlement Systems Act, 2007. Once passed, the UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI), will decide on the MDR structure. The ministry emphasized that any MDR imposed would be nominal and lower than typical debit or credit card MDRs, which currently range from 0.9% to 3% of transaction values.
This move comes amid debates on the sustainability of free UPI transactions, which have seen exponential growth in India’s digital payments landscape. Currently, credit card transactions attract MDRs of 1-3%, while debit cards have MDRs up to 0.9%. The ministry’s assurance that consumer transactions will remain free aims to prevent user backlash and maintain UPI’s popularity as a low-cost payment method. The selective MDR on merchants aligns with global practices where merchant fees support payment infrastructure costs.
The government’s full statement was published on medianama.com, confirming that the MDR, if introduced, will be limited in scope and value. The amendment bill is pending parliamentary approval, after which the NPCI-led committee will finalize MDR details.