A proposal to introduce Merchant Discount Rate (MDR) on certain UPI transactions has sparked widespread discussion across India. The proposed legal amendment could allow the government to impose merchant charges on UPI payments above a specified value, with ₹2,000 emerging as the threshold under consideration. However, the proposal does not mean that UPI users will immediately start paying fees.
The amendment is aimed at creating a legal framework for future policy decisions rather than introducing an instant charge. If implemented through a separate government notification, the fee would primarily apply to eligible merchant transactions, while person-to-person UPI transfers are expected to remain free. In this article, we explain what the proposed law says, why the government is considering the change, who could be affected, and what it means for consumers and businesses.
UPI Payments Above ₹2,000 May Soon Attract Merchant Fee Under Proposed Law Change
India’s zero-fee UPI ecosystem could witness a major policy shift after the Central Government introduced amendments to the Payment and Settlement Systems Act in Parliament. The proposed changes would create the legal framework for imposing a Merchant Discount Rate (MDR) on certain UPI transactions in the future. However, no fee has been approved yet, and UPI payments remain free under the current rules.
Also Read: ‘No Insurance, No Fuel’ Supreme Court Proposes Pilot Project to Improve Road Safety
What Has Changed?
The government has proposed amendments that would remove the existing legal restriction preventing banks and payment service providers from charging MDR on UPI and certain RuPay debit card transactions.
The amendment itself does not introduce an immediate charge. Instead, it gives the government the authority to notify MDR or other merchant charges through future regulations if it decides to do so.
What Is Merchant Discount Rate (MDR)?
Merchant Discount Rate is a fee paid by businesses to banks and payment service providers for processing digital transactions. Traditionally, merchants paid MDR on credit and debit card payments.
Since 2020, UPI and RuPay debit card transactions have largely operated under a zero-MDR policy, meaning merchants were not required to pay this fee. The government has compensated payment infrastructure providers through incentive schemes instead.
Also Read: Supreme Court Directs Centre to Ensure Encroachment-Free Walking Spaces Across India
Could UPI Payments Above ₹2,000 Be Charged?
One proposal being discussed is the introduction of MDR on merchant UPI transactions exceeding ₹2,000.
According to reports, policymakers are evaluating a model where:
- The charge would apply only to person-to-merchant (P2M) payments.
- Person-to-person (P2P) UPI transfers would continue to remain free.
- Large merchants may be covered first, while smaller businesses could continue to receive exemptions.
- The possible MDR rate being considered is around 0.3% to 0.5%, although no final decision has been taken.
Will Consumers Have to Pay?
As of now, there is no proposal to directly charge consumers for making UPI payments.
If MDR is introduced, it would generally be a fee payable by merchants to payment service providers. However, businesses could choose to absorb the cost or reflect it in product pricing, depending on their commercial decisions. No policy has been announced regarding passing the charge on to customers.
Why Is the Government Considering This Move?
UPI has become one of the world’s largest real-time digital payment systems, processing billions of transactions every month.
Industry participants have argued that maintaining a completely zero-fee ecosystem has become increasingly difficult because banks and fintech companies continue to invest heavily in payment infrastructure, cybersecurity, fraud prevention, and technology while earning little or no revenue from UPI transactions.
The proposed legal amendment is intended to provide flexibility for developing a more sustainable financial model for the digital payments ecosystem.
How Large Is the UPI Ecosystem?
Official data cited in recent reports shows that UPI processed 23.6 billion transactions worth approximately ₹29.9 trillion in July 2026, highlighting its dominant role in India’s digital economy.
Has Any Final Decision Been Taken?
No.
The government has only proposed legislative changes that would make it legally possible to introduce MDR in the future. Important aspects—including:
- whether MDR will be implemented,
- the exact transaction threshold,
- the applicable percentage,
- which merchants would be covered, and
- when the changes would take effect,
are yet to be officially decided.
What This Means for UPI Users
For now, UPI users can continue making payments without any change. The proposed amendment does not automatically impose charges on transactions above ₹2,000.
If the legislation is passed and the government later issues notifications introducing MDR, the impact is expected to be focused primarily on merchant transactions rather than person-to-person transfers. Until such notifications are issued, the existing zero-fee UPI framework remains in force.