No extra charges for consumers yet: Govt's new bill opens door for MDR on UPI, RuPay transactions at large merchants
Since January 2020, the government has prohibited banks and payment service providers from charging MDR on UPI and RuPay debit card transactions to encourage digital payments
- Aug 4, 2026,
- Updated Aug 4, 2026 1:33 PM IST
The Centre has initiated a major policy shift that could reshape India's digital payments ecosystem by paving the way for Merchant Discount Rate (MDR) on UPI and RuPay debit card transactions for large merchants. While the move has raised questions over the future of free digital payments, consumers are unlikely to be directly affected, as any charges would be borne by merchants rather than customers.
The proposal comes through amendments to the Payment and Settlement Systems (PSS) Act, introduced in Parliament as part of the Taxation and Other Laws (Amendment) Bill, 2026. According to The Indian Express, the amendments would allow the government to notify which electronic payment modes may attract MDR in the future instead of continuing the blanket zero-MDR regime.
READ THIS: Your UPI payments could soon be more private; NPCI plans to mask phone numbers on UPI apps
What the proposed amendment means
Since January 2020, the government has prohibited banks and payment service providers from charging MDR on UPI and RuPay debit card transactions to encourage digital payments. The proposed amendment removes the statutory provision enforcing zero MDR and instead gives the Centre the authority to decide, through notifications, where such charges may apply.
Industry experts believe the change is likely to impact large merchants with an annual turnover exceeding ₹50 crore, while small businesses are expected to continue receiving government support under existing incentive schemes.
Consumers unlikely to pay extra
The proposal does not mean customers will have to pay for using UPI. Merchant Discount Rate is a fee paid by businesses to banks and payment service providers for processing digital transactions. If implemented, the fee would primarily apply to merchants accepting payments rather than individuals making them.
This distinction is important as UPI has become India's preferred payment method, handling billions of transactions every month across retail stores, e-commerce platforms and service providers.
The government is considering the move
Banks and fintech companies have long argued that the zero-MDR policy has made the digital payments ecosystem financially challenging. Payment service providers continue to invest in infrastructure, cybersecurity and fraud prevention, but have limited avenues to recover operational costs.
Backing these concerns, the Parliamentary Standing Committee on Finance, in its March 2026 report, observed that the "absence of MDR makes the UPI ecosystem financially unsustainable." The committee recommended a sustainable revenue model to ensure continued investment in India's fast-growing digital payments infrastructure.
ALSO READ: Indians can now book Burj Khalifa tickets with PhonePe and Google Pay — here’s the full guide
Government support to continue
The government currently reimburses payment providers through its Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI (P2M) Transactions, which supports eligible transactions of up to ₹ 2,000 made to small merchants. Budget allocations for the scheme have continued in FY27, indicating that support for smaller businesses is likely to remain even if MDR is introduced for larger merchants.
According to the latest NPCI data, UPI processed a record 23.66 billion transactions worth nearly ₹ 29.9 lakh crore in July 2026, underlining its growing importance to India's digital economy. With transaction volumes continuing to surge, the proposed policy aims to strike a balance between sustaining the payments ecosystem and maintaining the convenience that has made UPI one of the world's largest real-time payment platforms.
The Centre has initiated a major policy shift that could reshape India's digital payments ecosystem by paving the way for Merchant Discount Rate (MDR) on UPI and RuPay debit card transactions for large merchants. While the move has raised questions over the future of free digital payments, consumers are unlikely to be directly affected, as any charges would be borne by merchants rather than customers.
The proposal comes through amendments to the Payment and Settlement Systems (PSS) Act, introduced in Parliament as part of the Taxation and Other Laws (Amendment) Bill, 2026. According to The Indian Express, the amendments would allow the government to notify which electronic payment modes may attract MDR in the future instead of continuing the blanket zero-MDR regime.
READ THIS: Your UPI payments could soon be more private; NPCI plans to mask phone numbers on UPI apps
What the proposed amendment means
Since January 2020, the government has prohibited banks and payment service providers from charging MDR on UPI and RuPay debit card transactions to encourage digital payments. The proposed amendment removes the statutory provision enforcing zero MDR and instead gives the Centre the authority to decide, through notifications, where such charges may apply.
Industry experts believe the change is likely to impact large merchants with an annual turnover exceeding ₹50 crore, while small businesses are expected to continue receiving government support under existing incentive schemes.
Consumers unlikely to pay extra
The proposal does not mean customers will have to pay for using UPI. Merchant Discount Rate is a fee paid by businesses to banks and payment service providers for processing digital transactions. If implemented, the fee would primarily apply to merchants accepting payments rather than individuals making them.
This distinction is important as UPI has become India's preferred payment method, handling billions of transactions every month across retail stores, e-commerce platforms and service providers.
The government is considering the move
Banks and fintech companies have long argued that the zero-MDR policy has made the digital payments ecosystem financially challenging. Payment service providers continue to invest in infrastructure, cybersecurity and fraud prevention, but have limited avenues to recover operational costs.
Backing these concerns, the Parliamentary Standing Committee on Finance, in its March 2026 report, observed that the "absence of MDR makes the UPI ecosystem financially unsustainable." The committee recommended a sustainable revenue model to ensure continued investment in India's fast-growing digital payments infrastructure.
ALSO READ: Indians can now book Burj Khalifa tickets with PhonePe and Google Pay — here’s the full guide
Government support to continue
The government currently reimburses payment providers through its Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI (P2M) Transactions, which supports eligible transactions of up to ₹ 2,000 made to small merchants. Budget allocations for the scheme have continued in FY27, indicating that support for smaller businesses is likely to remain even if MDR is introduced for larger merchants.
According to the latest NPCI data, UPI processed a record 23.66 billion transactions worth nearly ₹ 29.9 lakh crore in July 2026, underlining its growing importance to India's digital economy. With transaction volumes continuing to surge, the proposed policy aims to strike a balance between sustaining the payments ecosystem and maintaining the convenience that has made UPI one of the world's largest real-time payment platforms.