The Centre has introduced a new Bill in Parliament that could allow the government to introduce Merchant Discount Rate (MDR) charges on UPI and other electronic payment methods in the future.
However, the proposed amendment does not immediately introduce any charges on UPI transactions.
Instead, it gives the government the authority to decide which digital payment methods will remain free and which may attract MDR fees later.
The move comes amid discussions about creating a sustainable revenue model for India’s rapidly growing digital payment ecosystem.
What Is MDR and How Does It Work?
Merchant Discount Rate (MDR) is a fee paid by merchants to banks and payment service providers for processing digital payments.
It is usually charged as a percentage of the transaction amount.
For example, if a merchant receives a digital payment, a small portion of that amount may go towards payment processing charges.
Why Are UPI Transactions Currently Free?
The government removed MDR charges on UPI transactions from January 2020 to encourage digital payments across India.
This decision helped UPI grow rapidly by allowing businesses and customers to use digital payments without additional costs.
Today, UPI has become India’s largest digital payment platform. It handles more than 23 billion transactions every month and accounts for nearly 88% of all digital payment transactions.
Why Is the Government Considering Changes?
While the zero-MDR policy helped UPI adoption grow quickly, concerns have been raised about the long-term financial sustainability of the system.
A Parliamentary Standing Committee on Finance, in its report dated March 12, 2026, highlighted that the current model may become difficult to maintain as transaction volumes continue to rise.
The committee said that while zero MDR made digital payments affordable and accessible, the lack of revenue sources could create challenges for the UPI ecosystem.
Future Growth of UPI and Possible Revenue Model
The committee believes UPI has the potential to grow significantly in the coming years.
With increasing smartphone usage, digital adoption, and economic growth, UPI could potentially add around 600 million new users and handle 100 billion to 150 billion transactions every month in the future.
Payment companies have also argued that a sustainable revenue model is needed to support further investment and expansion of UPI services.
The government has not released the UPI subsidy for the previous financial year, increasing pressure on payment companies to find alternative ways to fund future growth.
Will UPI Charges Start Now?
No, UPI users will not have to pay any new charges immediately.
The proposed Bill only provides the government with the legal power to introduce MDR in the future if required.
Any decision on imposing charges will be taken separately after considering various factors.
