UPI Subsidy Changes are being considered as the government looks to reduce its reliance on taxpayer-funded incentives after the introduction of Merchant Discount Rate (MDR) on selected UPI transactions.
UPI Subsidy Changes: What the Government Is Considering
The government may discontinue subsidies supporting low-value UPI transactions as banks, payment companies and UPI platforms begin earning transaction-linked revenue through the new MDR framework.
No fresh subsidy has been paid for UPI transactions undertaken since April 2025, although the Centre has budgeted ₹2,000 crore for UPI and RuPay incentives for FY2026-27.
Why UPI Subsidies May Be Phased Out
UPI and RuPay transactions were supported through government incentives after MDR was made zero to encourage digital payment adoption.
As UPI usage expanded significantly, the cost of maintaining infrastructure, cybersecurity and payment technology also increased.
The new MDR framework is intended to create a revenue stream within the payment ecosystem, potentially reducing the need for continued government support.
New MDR Rules for UPI Payments
From October 15, 2026, a 0.4% MDR will apply to specified person-to-merchant UPI transactions above ₹2,000. The MDR will be capped at ₹300 for transactions of ₹75,000 or more.
Person-to-person UPI payments will remain free, while merchant payments up to ₹2,000 will also remain outside the MDR framework.
Eligible small merchants receiving up to ₹1 lakh per month through UPI QR transactions will continue to get zero-MDR treatment.
Will UPI Become Costlier for Consumers?
The government has clarified that MDR is a charge within the merchant payment ecosystem and is not a tax collected by the government or NPCI.
Consumers are not supposed to pay MDR directly.
UPI Subsidy Changes therefore do not mean that everyday UPI payments will suddenly become paid transactions.
The possible withdrawal of government support concerns the funding model behind the payment ecosystem, while most routine consumer payments will remain free.
