The government is now planning to change the legal framework that made Merchant Discount Rate (MDR) at zero pricing for UPI and RuPay debit card transactions since January 2020. Now this move can allow MDR to be allowed on selected digital payments in future, however, no new UPI charges have been introduced till now.
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The Lok Sabha has passed the relevant legislation and now parliamentary action is required to make changes in the law.
Merchant Discount Rate as MDR is a fee that merchants pay to banks and payment service providers for their processing of digital payments. It is generally a percent of the transaction amount that helps to get the maintenance cost for payment infrastructure.
Earlier January 2020, NPCI had a maximum 0.30 percent for UPI merchant transactions, which later changed in 2020 to zero for BHIM-UPI transactions and RuPay Debit card payments to encourage wider digital payment options.
Now this new change removes the legal restriction under Section 10A of the Payment and Settlement Systems Act, 2007, that allows government to permit charges on notified electronic payments through future notifications.
That doesn't mean that costumers will now start paying a UPI fee immediately. Now the exact MDR rate on transactions covered and categories of merchants will be depend on rules or notifications which issued later.
According to the Reports, the government is considering MDR mainly for UPI payments above Rs 2,000 made to large merchants, while smaller businesses low value transactions can be remain out of it. However, the government has not notified this structure yet.
MDR is a merchant-side charge that is mainly for business accepting the payment from customers, not the customers who are making payment through UPI.
Even Finance Minister Nirmala Sitharaman has also confirmed that any future MDR will be only apply to merchants not the customers. However, the business will also considered to put extra charges on their pricing of the products so that somehow will directly impact the customers that also depends on how policy is being implemented.
The discussions on MDR came as UPI has grown into India's biggest digital payment method. NPCI shows the data that more 23.2 billion transactions worth nearly Rs 29.9 lakh crore has been made through UPI in May 2026 alone.
The zero-MDR model actually helped to grow UPI payments, but banks, payments companies and other ecosystem companies have always questioned that handling such of massive transaction it should require a revenue model. Now this plan can take a huge step in UPI transaction method in India.