The Central government might propose changes to the Payment and Settlement Systems Act, 2007, that could pave the way for Merchant Discount Rate (MDR) charges on UPI transactions. Recently, the Finance Minister Nirmala Sitharaman introduced the amendment Bill in Parliament, giving the government the authority to decide whether to impose transaction charges through official notifications.
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The proposed amendment does not immediately introduce MDR on UPI payments. Instead, it removes the existing legal restriction that prevents banks and payment service providers from charging fees on notified digital payment modes such as UPI and RuPay debit cards. Any decision to levy MDR would require a separate government notification after the Bill becomes law.
Section 10A of the Payment Act
At present, Section 10A of the Payment and Settlement Systems Act states that banks and payment system providers cannot directly or indirectly impose any charge on individuals making or receiving payments through electronic payment modes notified by the Central government. The amendment would replace this blanket prohibition with a framework that allows the government to determine whether charges should apply.
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According to government sources, the proposed change is only an enabling provision and no decision has been taken on introducing MDR. If charges are implemented in the future, smaller transactions are likely to remain exempt.
Industry estimates suggest that only about 4% of UPI transactions exceed ₹2,000. However, these transactions account for nearly 70% of the total transaction value processed through the platform. Since MDR is calculated as a percentage of the transaction amount, higher-value payments are expected to be the primary focus if the government decides to introduce the fee.
What is a merchant discount fee?
The merchant discount rate is the fee paid by merchants to banks and payment service providers for processing digital payments. Before January 2020, UPI merchant transactions attracted MDR of up to 0.30%, according to the National Payments Corporation of India (NPCI). Debit card transactions currently attract MDR of up to 0.90%, depending on the card network, as per Reserve Bank of India guidelines, while credit card transactions typically carry MDR of around 1.5%.
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The government waived MDR on UPI and RuPay debit card transactions in January 2020 to encourage digital payments across the country. RuPay credit cards, however, continue to attract MDR in line with other credit card networks. Although consumers do not pay MDR on UPI payments today, the service is not entirely free. The government reimburses banks and NPCI for the waived charges, while some payment gateways recover operational costs through platform fees on selected merchant transactions.
Unified Payments Interface
Launched in 2016, the Unified Payments Interface has grown into the world’s largest real-time payment system, accounting for nearly half of all instant digital payment transactions globally. The platform continues to record rapid growth in India, with the Department of Financial Services reporting 23.66 billion UPI transactions worth ₹29.9 lakh crore in July alone.
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If the amendment is approved by Parliament, it will give the government greater flexibility in deciding the future pricing framework for digital payments, while leaving the timing and scope of any MDR levy open for a separate policy decision.
Indrani Priyadarshini is a journalist and editorial professional specialising in technology, artificial intelligence, smart cities, green energy, and digital transformation. With over four years of experience in tech journalism and digital media, she is known for turning complex industry developments into clear, engaging, and insightful stories. Her expertise spans reporting, editorial strategy, digital publishing workflows, and in-depth coverage of emerging technologies shaping the future. She has also conducted high-profile interviews and podcasts with industry leaders, bringing sharp analysis and accessible storytelling to a wide audience.
