The Central Government is considering bringing back the Merchant Discount Rate (MDR) on certain UPI transactions.
However, the proposed change is expected to apply only to large merchants and high-value payments.
According to sources, UPI transactions of ₹2,000 or more made to large businesses could soon attract an MDR of up to 0.5%. A final decision is likely within the next month.
What Is MDR?
Merchant Discount Rate (MDR) is a fee that businesses pay to banks and payment service providers for accepting digital payments.
Currently, merchants do not pay any MDR on UPI or RuPay debit card transactions.
The government removed these charges in January 2020 to encourage digital payments across the country.
Before that, merchants paid an MDR of less than 1% on UPI and RuPay debit card transactions.
Small Businesses May Remain Exempt
The proposed rule is unlikely to affect small businesses.
According to sources, merchants with an annual turnover of up to ₹1.5 crore may be completely exempt from the MDR, regardless of the transaction amount.
The government believes larger businesses are better equipped to bear the additional cost or pass it on to customers, while smaller merchants may struggle to do so.
Why Is the Government Considering This Change?
Banks and payment service providers have long argued that maintaining and expanding India’s digital payment infrastructure has become expensive.
To compensate for the removal of MDR, the government currently provides an incentive of 0.15% on UPI transactions below ₹2,000.
However, the Payments Council of India (PCI) says this support is not enough.
Earlier this year, the Department of Financial Services (DFS) informed a Parliamentary panel that the government incentive covers only about 11% of the industry’s operating costs and around 14% of the revenue that could have been earned through MDR.
Most UPI Payments Won’t Be Affected
The proposed change is expected to impact only a small portion of UPI transactions.
According to FY26 data:
86% of person-to-merchant (P2M) UPI payments are below ₹500.
10% are between ₹501 and ₹2,000.
Only 4% are above ₹2,000.
This means the majority of UPI users are unlikely to be affected if the proposal is approved.
UPI Has Grown Rapidly
UPI has become India’s most popular digital payment platform over the past decade.
The number of annual UPI transactions has grown from 20 million in FY17 to more than 241.62 billion in FY26.
During the same period, the total transaction value increased from around ₹7,000 crore to nearly ₹314 lakh crore.
With digital payments continuing to grow rapidly, the government is now looking at ways to balance the cost of maintaining the payment ecosystem while protecting small merchants from additional financial burden.
