Finance Ministry introduces Bill to enable MDR on UPI, digital payments; government to decide future levy
The move marks the first major policy shift since January 2020, when the government barred banks and payment service providers from levying MDR on UPI and RuPay debit card transactions to accelerate digital payment adoption.
- Aug 4, 2026,
- Updated Aug 4, 2026 4:30 PM IST
The Finance Ministry has introduced the Payment and Settlement Systems (Amendment) Bill, 2027 in Parliament, paving the way for the possible introduction of a Merchant Discount Rate (MDR) on digital payment modes, including Unified Payments Interface (UPI). While the Bill does not impose any charges immediately, it empowers the government to decide in the future which digital payment methods should remain exempt from MDR and which could attract the fee.
The move marks the first major policy shift since January 2020, when the government barred banks and payment service providers from levying MDR on UPI and RuPay debit card transactions to accelerate digital payment adoption.
According to sources cited by Moneycontrol, discussions are underway to reintroduce MDR for selected categories of transactions, particularly merchant payments above Rs 2,000 and large commercial establishments. Consumer-to-consumer (P2P) UPI transfers are expected to remain free.
Merchant Discount Rate (MDR) is the fee paid by businesses to banks and payment service providers for processing digital transactions, and any proposal to restore it applies to merchants—not consumers using UPI. The government had scrapped MDR on UPI transactions from January 2020 to accelerate digital payments, driving widespread adoption among users and merchants.
A Parliamentary Standing Committee later cautioned that the zero-MDR regime had made the UPI ecosystem financially unsustainable, even as it projected the platform could add 600 million users and handle 100–150 billion transactions a month in the coming years.
What the Bill changes
The amendment replaces the existing provision under the Payment and Settlement Systems Act, 2007, which mandates that specified digital payment methods remain exempt from MDR. Instead, the government will have the authority to notify, through rules, the payment instruments that should continue to enjoy zero MDR and those that may attract merchant charges.
Officials said the Bill itself does not prescribe any MDR rate. Any levy would require legislative approval, publication of a Gazette notification and subsequent RBI guidelines specifying the applicable transaction categories, rates and implementation framework.
MDR likely between 25-30 basis points
Sources familiar with the discussions said the proposed MDR on UPI transactions could be 25-30 basis points (bps). One basis point equals one-hundredth of a percentage point, implying a charge of 25 paise to 30 paise on every Rs 100 transaction, or around Rs 2.50 to Rs 3 per Rs 1,000.
The proposed fee is expected to apply only to merchant transactions exceeding Rs 2,000 and not to person-to-person payments.
Industry estimates suggest that even a modest MDR on eligible merchant transactions could generate around Rs 13,000 crore annually, providing payment companies with a sustainable revenue stream.
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Why MDR is being reconsidered
The digital payments ecosystem has argued that the zero-MDR regime has become financially difficult to sustain. Payment companies have maintained that despite rapid transaction growth, the absence of merchant charges and delays in government subsidy reimbursements have strained investments in payment infrastructure.
India's digital payments market has expanded significantly since MDR was abolished. According to industry estimates, around 88% of all digital transactions are now conducted through UPI, processing over 23 billion transactions worth nearly Rs 30 lakh crore every month.
A government-appointed committee on digital payments had also recommended introducing market-based pricing to ensure the long-term sustainability of the UPI ecosystem as transaction volumes continue to surge.
The Finance Ministry has maintained that the proposed amendment merely provides policy flexibility. Any decision to introduce MDR, along with its rates, exemptions and categories of merchants, will be taken separately after due consultation and notification.
MUST READ: Your UPI payments could soon be more private; NPCI plans to mask phone numbers on UPI apps
The Finance Ministry has introduced the Payment and Settlement Systems (Amendment) Bill, 2027 in Parliament, paving the way for the possible introduction of a Merchant Discount Rate (MDR) on digital payment modes, including Unified Payments Interface (UPI). While the Bill does not impose any charges immediately, it empowers the government to decide in the future which digital payment methods should remain exempt from MDR and which could attract the fee.
The move marks the first major policy shift since January 2020, when the government barred banks and payment service providers from levying MDR on UPI and RuPay debit card transactions to accelerate digital payment adoption.
According to sources cited by Moneycontrol, discussions are underway to reintroduce MDR for selected categories of transactions, particularly merchant payments above Rs 2,000 and large commercial establishments. Consumer-to-consumer (P2P) UPI transfers are expected to remain free.
Merchant Discount Rate (MDR) is the fee paid by businesses to banks and payment service providers for processing digital transactions, and any proposal to restore it applies to merchants—not consumers using UPI. The government had scrapped MDR on UPI transactions from January 2020 to accelerate digital payments, driving widespread adoption among users and merchants.
A Parliamentary Standing Committee later cautioned that the zero-MDR regime had made the UPI ecosystem financially unsustainable, even as it projected the platform could add 600 million users and handle 100–150 billion transactions a month in the coming years.
What the Bill changes
The amendment replaces the existing provision under the Payment and Settlement Systems Act, 2007, which mandates that specified digital payment methods remain exempt from MDR. Instead, the government will have the authority to notify, through rules, the payment instruments that should continue to enjoy zero MDR and those that may attract merchant charges.
Officials said the Bill itself does not prescribe any MDR rate. Any levy would require legislative approval, publication of a Gazette notification and subsequent RBI guidelines specifying the applicable transaction categories, rates and implementation framework.
MDR likely between 25-30 basis points
Sources familiar with the discussions said the proposed MDR on UPI transactions could be 25-30 basis points (bps). One basis point equals one-hundredth of a percentage point, implying a charge of 25 paise to 30 paise on every Rs 100 transaction, or around Rs 2.50 to Rs 3 per Rs 1,000.
The proposed fee is expected to apply only to merchant transactions exceeding Rs 2,000 and not to person-to-person payments.
Industry estimates suggest that even a modest MDR on eligible merchant transactions could generate around Rs 13,000 crore annually, providing payment companies with a sustainable revenue stream.
ALSO READ: Indians can now book Burj Khalifa tickets with PhonePe and Google Pay — here’s the full guide
Why MDR is being reconsidered
The digital payments ecosystem has argued that the zero-MDR regime has become financially difficult to sustain. Payment companies have maintained that despite rapid transaction growth, the absence of merchant charges and delays in government subsidy reimbursements have strained investments in payment infrastructure.
India's digital payments market has expanded significantly since MDR was abolished. According to industry estimates, around 88% of all digital transactions are now conducted through UPI, processing over 23 billion transactions worth nearly Rs 30 lakh crore every month.
A government-appointed committee on digital payments had also recommended introducing market-based pricing to ensure the long-term sustainability of the UPI ecosystem as transaction volumes continue to surge.
The Finance Ministry has maintained that the proposed amendment merely provides policy flexibility. Any decision to introduce MDR, along with its rates, exemptions and categories of merchants, will be taken separately after due consultation and notification.
MUST READ: Your UPI payments could soon be more private; NPCI plans to mask phone numbers on UPI apps