MDR on UPI transactions over ₹2,000? Here’s what we know so far

The merchant discount rate (MDR) that the government is considering could be introduced on UPI transactions above ₹2,000, while person-to-person transfers are expected to remain free. The Finance Ministry introduced the Payment and Settlement Systems (Amendment) Bill, 2027, in Parliament allowing for the possible return of MDR on digital payment modes, including UPI.

A source told Business Today, “It was always in the plan. We did not push for introducing it until now as the idea was to expand UPI, and in the last 5-6 years it has expanded very well. The rate and specific fees will help in setting up a viable revenue mechanism for the Finance Ministry. In most likelihood, the fee structure will be mostly for large merchants only. We are consulting on the revenue threshold and deciding what we would specify as a large threshold.”

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According to a report in Times of India that cited sources, the proposed levy on business transactions could range from 0.25% to 0.4%, with discussions also focusing on 25-30 basis points. No decision has been made yet on the implementation timeline.

Officials noted that the ₹2,000 threshold would cover about 5% of all UPI transactions by volume but account for around 65% of the total transaction value, the report added. They said routine purchases such as milk, vegetables, groceries, and payments for autorickshaw and taxi rides are unlikely to be affected. In July, UPI handled 23.7 billion transactions worth ₹29.9 lakh crore. An official said that even if implemented, 95% of transactions would not face MDR, and not all businesses would pass on the fees, which would be small.

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Separately, the Taxation and Other Laws (Amendment) Bill, moved by Finance Minister Nirmala Sitharaman, seeks to remove the bar on banks and payment service providers from levying MDR on notified electronic payment modes.

Currently, the law requires certain digital payment methods to remain exempt from MDR. The amendment changes this by allowing the government to notify which payment instruments will continue with zero MDR and which may attract merchant charges. Officials clarified that the Bill does not set any MDR rate, and any levy would require legislative approval, a Gazette notification, and RBI guidelines detailing transaction categories, rates, and implementation.

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Sources told TOI that the proposal mainly targets merchant transactions above ₹2,000 and larger commercial establishments. Consumer-to-consumer UPI transfers are expected to remain exempt. MDR is a fee paid by businesses to banks and payment service providers for processing digital transactions, so any charge would apply to merchants, not consumers using UPI.

This 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 promote digital payment adoption. Since then, UPI has grown sharply, now accounting for around 88% of all digital transactions, with over 23 billion transactions worth nearly ₹30 lakh crore processed monthly.