Finance Minister Nirmala Sitharaman has clarified the confusion around possible Merchant Discount Rate (MDR) charges on UPI payments.
She said the proposed MDR would apply to merchants and would not directly affect ordinary customers using UPI.
The clarification came after Congress leader Jairam Ramesh raised concerns that UPI users could eventually have to pay more for digital transactions.
No Final Decision on UPI MDR Yet
According to the Finance Minister, no final decision has been taken on introducing MDR for UPI transactions. The UPI and NPCI-led Services Steering Committee is still considering the matter.
A decision is expected only after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.
The proposed law would give the government the power to decide which electronic payment methods or transactions should remain free.
How Could MDR Help UPI Users?
Sitharaman said that MDR would be charged to merchants rather than ordinary UPI customers. The fee could provide additional revenue to banks and fintech companies.
This money could then be used to improve payment infrastructure, introduce new technology and strengthen transaction security. According to the Finance Minister, these improvements would ultimately benefit UPI users.
What Could Change Under the New Bill?
The Finance Minister introduced the Taxation and Other Laws (Amendment) Bill, 2026, in Parliament on Tuesday.
The bill seeks to remove the existing restriction that prevents banks and payment service providers from charging MDR on certain notified electronic payment modes.
Following the introduction of the bill, reports suggest that the government could consider allowing an MDR of around 0.25% to 0.40% on UPI payments above ₹2,000. However, no final rate has been officially approved yet.
Small Everyday Payments May Remain Unaffected
According to government estimates, transactions above ₹2,000 make up only around 5% of all UPI transactions, although they account for about 65% of the total transaction value.
This means everyday payments for milk, vegetables, groceries, auto rides and taxis are unlikely to be affected in most cases.
UPI continues to handle a massive number of digital payments in India. In July alone, around 23.7 billion UPI transactions were recorded, with a total transaction value of approximately ₹29.9 trillion.
