Government says the proposed legal change only enables a future MDR framework and does not impose charges on ordinary UPI users
UPI users can breathe easy. The Centre has clarified that ordinary Unified Payments Interface (UPI) payments will remain free even if a Merchant Discount Rate (MDR) is introduced for certain transactions.
The Finance Ministry said on Saturday that any future MDR would apply only to a limited set of merchant transactions above a specified threshold and would be charged at a nominal rate. Person-to-person UPI transfers will continue to remain completely free.
The clarification comes amid concerns that recent changes to the payments law could pave the way for widespread charges on UPI transactions.
No blanket charge on UPI payments
The government stressed that there is no proposal to impose MDR across all UPI transactions.
If introduced, the charge would be restricted to select merchant payments crossing a yet-to-be-decided threshold. The government also said the rate would be substantially lower than the MDR currently applicable to debit and credit card transactions.
The vast majority of UPI transactions are therefore expected to remain free for merchants as well as consumers.
What is MDR?
Merchant Discount Rate is a fee paid by a merchant to banks and payment service providers for processing a digital payment.
Under the proposed framework, the charge would not be imposed directly on ordinary UPI users. The Centre has specifically assured that consumers will not have to pay a fee for making regular UPI payments.
Person-to-person transactions, such as transferring money from one bank account to another, will also remain free.
Why is the government considering MDR?
The government says the explosive growth of UPI has created a need for sustained investment in the digital payments ecosystem.
According to the Finance Ministry, rising transaction volumes require continued spending on cybersecurity, fraud prevention and digital infrastructure.
The Centre also argues that a sustainable revenue model could encourage more companies to invest in and expand India’s digital payments ecosystem.
It said relying solely on government subsidies would not be viable for the next phase of UPI’s growth.
What does the new amendment do?
The clarification follows the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to Section 10A of the Payment and Settlement Systems Act, 2007.
The amendment is essentially an enabling provision. It creates the legal framework for imposing an MDR in the future but does not itself introduce a charge on UPI transactions.
If Parliament passes the Bill, the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), will decide whether an MDR should be introduced and determine the applicable framework.
Centre rejects claims of external pressure
The Finance Ministry also rejected suggestions that the proposed changes were being introduced because of pressure from external entities.
The government termed such claims unfounded, false and misleading, reiterating that the objective is to create a sustainable and competitive digital payments ecosystem.
For millions of Indians who use UPI every day, the key takeaway remains clear: there will be no blanket charge on UPI payments, and person-to-person transfers will continue to be free.
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