The Union government is considering introducing merchant charges on certain Unified Payments Interface (UPI) transactions, according to verified sources. If approved, the proposal would apply only to merchant payments and would not affect person-to-person (P2P) UPI transfers, which will continue to remain free.
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What is the proposal about?
The proposal being discussed would introduce a Merchant Discount Rate (MDR) of 0.3% to 0.5% on UPI transactions above ₹2,000. However, the charges would reportedly apply only to businesses with an annual turnover of more than ₹1.5 crore. Consumers making payments through UPI would not be directly charged under the proposed framework.
The move comes after Union Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill in Parliament. The Bill proposes changes to the Payment and Settlement Systems Act, 2007, giving the Union government the authority to notify electronic payment methods on which banks or payment service providers cannot levy charges.
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According to sources, the proposed amendment does not introduce an MDR immediately. Instead, it removes the existing legal restriction that prevents the government from imposing merchant charges on notified digital payment methods. Any decision to levy MDR would require a separate government notification in the future.
What are the possible approaches?
Government officials stated that policymakers are evaluating two possible approaches. One option is to introduce MDR only on UPI transactions above a specified value, currently being discussed as ₹2,000. The second option is to link the charges to a merchant’s annual turnover, ensuring that only large businesses pay the fee while keeping UPI payments free for consumers and smaller merchants.
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The government has not yet taken a final decision on either proposal. For now, the amendment only creates the legal framework that would allow merchant charges to be introduced later if the government decides to do so.
The proposal comes as digital payments continue to grow rapidly across India, with UPI handling billions of transactions every month. Any change to the MDR framework could have a significant impact on payment service providers, merchants and the country’s digital payments ecosystem.
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.
