Will UPI payments be charged? Govt clarifies amid speculation over MDR rates

The Centre on Saturday clarified a number of details about the United Payments Interface (UPI) system, in light of recent reports speculating whether users would now have to face charges.

As of now, UPI transactions between users will remain free, while a "nominal" Merchant Discount Rate (MDR) may be introduced for "a limited set of merchant transactions", the finance ministry said in a statement. Users making payments to merchants will also not face charges.

The MDR is a fee that a business pays to a bank for processing digital and card payments, that is, by definition, prohibited from being passed on to customers.

In practice, after the MDR is deducted amid a transaction, it is shared between the issuing and acquiring banks.

Notably, the statement remains vague on the criteria under which MDR rates could apply to selected merchant transactions if it comes into force, as well as the question of whether it would impose limits on merchants offsetting the MDR rates by increasing the basic prices of their products.

"MDR, if introduced, will only be threshold-based and not blanketly levied to all," the finance ministry said.

The MDR coming into force now depends on the passage of the Taxation and Other Laws (Amendment) Bill, 2026 through the Parliament.

The bill proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007, which has mandated 'zero-MDR' for payment modes such as UPI and RuPay debit cards since 2020, regardless of whether the transactions are processed directly or indirectly.

However, payment types like Visa or MasterCard debit cards, credit cards, and corporate wallets are not included under this section, which lets banks to impose an MDR on such transactions.

Once the Parliament passes the bill, the 'UPI and Services Steering Committee' headed by the National Payments Corporation of India (NPCI) will decide on the MDR, if any.

The plea to amend the Payment and Settlement Systems Act, 2007, came from the Payments Council of India (PCI) in March 2025.

In a letter to the Centre that year, it mentioned that it faced financial pressure due to the sheer scale of payments made through UPI and RuPay transactions across India.

It also highlighted that the Centre's subsidies of around ₹1,500 crore were also not enough to cover the annual costs for maintaining UPI services, of around ₹10,000 crore.

In that regard, the Centre also said on Saturday that the amendment was aimed at supporting the growth of the UPI ecosystem and bringing about market expansion.

Though it has rejected reports claiming that external factors played a role in the decision, it did not clear the air on other reports indicating that if MDR is introduced in the future, it will apply to transactions above ₹2000.