Finance Ministry Introduces Bill to Allow Government to Decide MDR Charges on UPI and Digital Payments
The Finance Ministry has introduced a bill in Parliament to amend the Payment and Settlement Systems Act, 2007. The proposed amendment would give the government the power to decide whether Merchant Discount Rate (MDR) can be applied to one or more electronic payment modes, including UPI.
Importantly, the bill itself does not impose any MDR or new charge on UPI transactions. Instead, it creates a legal framework that would allow the government to decide in the future which digital payment methods should remain free from merchant charges and which may attract MDR.
What is MDR?
Merchant Discount Rate (MDR) is a fee charged by banks and payment service providers to merchants or businesses for processing digital payments. When a customer makes a digital payment to a merchant, the merchant may have to pay a small percentage of the transaction amount as MDR.
At present, UPI transactions are covered by a zero-MDR policy, which means merchants are generally not charged MDR for accepting payments through UPI.
Government May Get More Flexibility on UPI Charges
The proposed amendment would provide greater flexibility to the Central Government in deciding how MDR should apply to different electronic payment methods.
According to legal experts, the amendment does not immediately introduce charges on UPI. However, it would change the existing structure under which UPI enjoys zero-MDR status.
MDR May Be Considered for Large UPI Merchants
As per media reports, MDR could potentially be below 0.5% and may apply to transactions above ₹2,000.
However, the bill currently introduced in Parliament does not itself impose such a charge. Any actual MDR, including its rate, transaction limit or the category of merchants covered, would have to be decided separately.
Why Was Zero MDR Introduced on UPI?
The Central Government introduced the zero-MDR policy for UPI from January 2020 to encourage the use of digital payments across the country.
Under this policy, merchants were not required to pay MDR for accepting UPI payments. This helped make UPI an attractive payment option for both customers and businesses and contributed significantly to its rapid adoption across India.
UPI Now Dominates Digital Payments in India
UPI has grown significantly over the past few years and has become one of the most widely used digital payment methods in India.
Currently, around 88% of all digital transactions in the country take place through UPI. The platform processes more than 23 billion transactions every month, with the total monthly transaction value reaching close to ₹30 lakh crore.
Zero MDR Model Raises Financial Sustainability Concerns
A report by the Standing Committee on Finance dated March 12, 2026, said that the zero-MDR policy was introduced to make digital transactions affordable and accessible to a large number of people.
However, the committee also raised concerns about the financial sustainability of the UPI ecosystem. Without MDR revenue, banks and payment companies may find it difficult to generate sufficient income from UPI transactions to fund infrastructure, technology and future expansion.
UPI Could Grow Tenfold in Coming Years
The Standing Committee also highlighted the huge growth potential of UPI. It said the platform could expand significantly in the coming years because of India’s large population, economic growth and geographical reach.
The committee projected that UPI could add another 600 million users and eventually process between 100 billion and 150 billion transactions every month over the next few years.
Such rapid growth would require significant investment in technology, payment infrastructure, cybersecurity and transaction-processing capacity.
Payment Companies Seek a Revenue Model for UPI
The Central Government has not disbursed the UPI subsidy for the previous financial year. Payment companies have argued that the next phase of UPI growth will require a sustainable revenue model so that they can continue investing in the payment ecosystem.
The debate over MDR has therefore focused on finding a balance between keeping UPI affordable for users and small merchants while providing banks and payment companies with enough revenue to support the system.
Different MDR Rules Could Apply to Small and Large Merchants
The proposed amendment could also allow the government to adopt different MDR rules for different categories of merchants.
Does the New Bill Mean UPI Will Become Chargeable?
No immediate charge on UPI has been introduced through this bill. The amendment only seeks to give the government the legal power and flexibility to decide how MDR should apply to different electronic payment methods in the future.
Therefore, UPI users and merchants should not interpret the introduction of the bill as an immediate announcement of MDR on UPI. Any future decision to introduce MDR, along with its rate, transaction threshold and the categories of merchants covered, would require a separate government decision.
