The government has indicated that it may allow a nominal Merchant Discount Rate (MDR) on a limited category of UPI merchant payments above a specified transaction threshold.

However, the Finance Ministry clarified that there is no proposal to introduce a blanket charge across UPI transactions. If MDR is eventually introduced, it would apply only to certain merchant payments and would be significantly lower than the rates currently associated with debit and credit card transactions.

The ministry said the overwhelming majority of UPI transactions would continue without any merchant charge.

UPI PAYMENTS TO REMAIN FREE FOR USERS

The clarification follows provisions in the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to amend Section 10A of the Payment and Settlement Systems Act, 2007.

If Parliament clears the legislation, decisions regarding whether MDR should be introduced would be taken by the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI).

The Finance Ministry stressed that the amendment itself does not introduce a charge for ordinary UPI users.

Consumers will continue to use UPI without paying a transaction fee, while person-to-person transfers will also remain free, according to the government.

WHY THE GOVERNMENT IS CONSIDERING MDR

The government said India's rapidly expanding digital payments ecosystem requires substantial and continuing investment.

Rising transaction volumes have increased the need for stronger cybersecurity systems, fraud prevention measures and payment infrastructure. The government also believes that the ecosystem needs a more sustainable revenue model to encourage companies to continue investing in digital payments.

According to the ministry, depending entirely on government subsidies may not be sufficient to support the next phase of UPI's expansion.

The proposed framework is therefore intended to balance affordability with the long-term financial sustainability of India's digital payments infrastructure.

NO BLANKET CHARGE ON MERCHANTS

The government reiterated that any future MDR would be limited, threshold-based and nominal, rather than imposed on every merchant transaction.

The proposed rate would also remain substantially below the MDR charged on conventional debit and credit card payments.

The ministry said the broader objective is to ensure that UPI remains accessible while strengthening the infrastructure needed to support India's growing digital economy.

It also rejected speculation that the proposed changes were being driven by outside influence, describing such claims as false and misleading.