UPI charges explained: PCI says consumers, small merchants will continue to pay nothing amid MDR debate
The Payments Council of India (PCI) has clarified that UPI remains free for consumers and small merchants despite the ongoing debate over Merchant Discount Rate (MDR). Here's what the industry body said and why the issue has resurfaced following the recent amendment to the payment law.
- Aug 8, 2026,
- Updated Aug 8, 2026 7:40 AM IST
The Payments Council of India (PCI) has sought to reassure consumers and small merchants that UPI transactions remain free, amid growing discussion over the future of Merchant Discount Rate (MDR) on digital payments following amendments to the Payment and Settlement Systems Act.
In a post on X, the industry body clarified that there is no proposal to charge consumers for using UPI, and small merchants such as kirana stores will continue to accept UPI payments without paying MDR. The clarification comes after the Payment and Settlement Systems (Amendment) Bill, 2026 sparked speculation that UPI users and merchants could soon face charges.
Merchant Discount Rate (MDR) is the fee that merchants pay to banks or payment service providers for processing digital transactions. While consumers do not pay this charge directly, supporters say MDR would help fund payment infrastructure, cybersecurity and innovation, while critics argue it could discourage small merchants from accepting UPI or eventually increase costs for consumers.
Consumers will continue to use UPI free of cost
PCI said UPI has remained free for consumers since its launch in 2016, and every Indian can continue making instant digital payments without paying transaction charges.
The council also clarified that small merchants are not required to pay Merchant Discount Rate (MDR) to accept UPI payments. According to PCI, making digital payments affordable for even the smallest businesses has been central to UPI's growth.
Why is the MDR debate happening?
According to PCI, the discussion has emerged because UPI has evolved into the world's largest real-time payment system, processing billions of transactions every month.
Maintaining such a large payments network requires continuous investment in technology infrastructure, cybersecurity, fraud prevention, compliance, innovation and customer support. These costs are currently borne by banks, payment service providers, fintech companies, the National Payments Corporation of India (NPCI) and other ecosystem participants.
PCI said the ongoing debate is about ensuring the long-term sustainability of this infrastructure while continuing to protect consumers and small businesses.
MUST READ | BT Exclusive: Large merchants may bear UPI MDR under proposed framework, say sources
Merchant charges do not mean consumers pay
The industry body emphasised that merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not imply that consumers would have to pay for making UPI payments.
PCI noted that merchant service charges are a common feature of digital payment ecosystems globally, even as consumers continue to enjoy free and convenient digital payment services.
Why sustaining UPI matters
Calling UPI a critical national digital infrastructure, PCI said sustained investment will be required to maintain security, resilience and innovation as transaction volumes continue to grow.
The council added that ongoing investments are necessary to ensure UPI remains reliable, secure and available round the clock.
ALSO READ: 'A regressive step': Ashneer Grover says MDR on UPI will kill mobile payments
What has changed in UPI ecosystem?
The debate follows the passage of the Payment and Settlement Systems (Amendment) Bill, 2026 by the Lok Sabha.
The amendment does not immediately impose charges on UPI transactions. Instead, it removes the legal prohibition that prevented banks and payment service providers from levying Merchant Discount Rate (MDR) on notified electronic payment modes, including UPI. The amended law empowers the Central Government to notify which digital payment modes may attract charges in the future.
The change modifies Section 10A of the Payment and Settlement Systems Act, 2007, which had earlier barred charges on payment modes notified under Section 269SU of the Income Tax Act. Consequently, UPI and RuPay debit card transactions have remained free of MDR until now.
The amendment has revived the debate over how India's rapidly expanding digital payments ecosystem should be funded. Banks and payment companies argue that processing billions of UPI transactions without MDR affects the commercial viability of the system.
RBI Governor Sanjay Malhotra recently said it is premature to discuss the levy of MDR but observed that digital payment infrastructure must ultimately be funded either through a "user pays" model or continued public funding through taxpayers.
Industry experts believe that if MDR is introduced in the future, it is more likely to apply initially to merchant payments above a specified transaction threshold, while person-to-person (P2P) UPI transfers are expected to remain free. The government has not yet issued any notification specifying whether, when or on which transactions such charges may apply.
The Payments Council of India (PCI) has sought to reassure consumers and small merchants that UPI transactions remain free, amid growing discussion over the future of Merchant Discount Rate (MDR) on digital payments following amendments to the Payment and Settlement Systems Act.
In a post on X, the industry body clarified that there is no proposal to charge consumers for using UPI, and small merchants such as kirana stores will continue to accept UPI payments without paying MDR. The clarification comes after the Payment and Settlement Systems (Amendment) Bill, 2026 sparked speculation that UPI users and merchants could soon face charges.
Merchant Discount Rate (MDR) is the fee that merchants pay to banks or payment service providers for processing digital transactions. While consumers do not pay this charge directly, supporters say MDR would help fund payment infrastructure, cybersecurity and innovation, while critics argue it could discourage small merchants from accepting UPI or eventually increase costs for consumers.
Consumers will continue to use UPI free of cost
PCI said UPI has remained free for consumers since its launch in 2016, and every Indian can continue making instant digital payments without paying transaction charges.
The council also clarified that small merchants are not required to pay Merchant Discount Rate (MDR) to accept UPI payments. According to PCI, making digital payments affordable for even the smallest businesses has been central to UPI's growth.
Why is the MDR debate happening?
According to PCI, the discussion has emerged because UPI has evolved into the world's largest real-time payment system, processing billions of transactions every month.
Maintaining such a large payments network requires continuous investment in technology infrastructure, cybersecurity, fraud prevention, compliance, innovation and customer support. These costs are currently borne by banks, payment service providers, fintech companies, the National Payments Corporation of India (NPCI) and other ecosystem participants.
PCI said the ongoing debate is about ensuring the long-term sustainability of this infrastructure while continuing to protect consumers and small businesses.
MUST READ | BT Exclusive: Large merchants may bear UPI MDR under proposed framework, say sources
Merchant charges do not mean consumers pay
The industry body emphasised that merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not imply that consumers would have to pay for making UPI payments.
PCI noted that merchant service charges are a common feature of digital payment ecosystems globally, even as consumers continue to enjoy free and convenient digital payment services.
Why sustaining UPI matters
Calling UPI a critical national digital infrastructure, PCI said sustained investment will be required to maintain security, resilience and innovation as transaction volumes continue to grow.
The council added that ongoing investments are necessary to ensure UPI remains reliable, secure and available round the clock.
ALSO READ: 'A regressive step': Ashneer Grover says MDR on UPI will kill mobile payments
What has changed in UPI ecosystem?
The debate follows the passage of the Payment and Settlement Systems (Amendment) Bill, 2026 by the Lok Sabha.
The amendment does not immediately impose charges on UPI transactions. Instead, it removes the legal prohibition that prevented banks and payment service providers from levying Merchant Discount Rate (MDR) on notified electronic payment modes, including UPI. The amended law empowers the Central Government to notify which digital payment modes may attract charges in the future.
The change modifies Section 10A of the Payment and Settlement Systems Act, 2007, which had earlier barred charges on payment modes notified under Section 269SU of the Income Tax Act. Consequently, UPI and RuPay debit card transactions have remained free of MDR until now.
The amendment has revived the debate over how India's rapidly expanding digital payments ecosystem should be funded. Banks and payment companies argue that processing billions of UPI transactions without MDR affects the commercial viability of the system.
RBI Governor Sanjay Malhotra recently said it is premature to discuss the levy of MDR but observed that digital payment infrastructure must ultimately be funded either through a "user pays" model or continued public funding through taxpayers.
Industry experts believe that if MDR is introduced in the future, it is more likely to apply initially to merchant payments above a specified transaction threshold, while person-to-person (P2P) UPI transfers are expected to remain free. The government has not yet issued any notification specifying whether, when or on which transactions such charges may apply.