Government Considers MDR Fee on UPI Transactions for Merchants

The Indian government may soon introduce a fee on Unified Payments Interface (UPI) transactions. Finance Minister Nirmala Sitharaman has presented the Taxation and Other Laws (Amendment) Bill, 2026. This bill would allow the government to charge a fee for UPI payments. UPI has so far remained free for users, raising concerns about possible changes.

Key Highlights

• Government may introduce MDR fee on UPI transactions for merchants.
• Finance Minister clarifies end users will not be charged for UPI payments.
• Proposed MDR could be 0.3 to 0.5 percent on transactions above Rs 2,000.
• Fee likely to affect merchants with turnover above Rs 1.5 crore.
• No final decision made; proposal under review by NPCI committee.

In response to public debate, Nirmala Sitharaman clarified the government's position. She stated that any proposed fee would not affect end users. Instead, the Merchant Discount Rate (MDR) would apply only to merchants accepting UPI payments. This clarification came after Congress leader Jairam Ramesh suggested the government might charge fees on all digital payments in the future.

Clarification on MDR Fee

Nirmala Sitharaman addressed the issue on X, formerly Twitter. She urged against spreading misinformation about the proposed changes. Sitharaman explained that the MDR would only be charged to merchants, not customers. Regular users making payments through UPI would remain unaffected if the fee is introduced.

The MDR is a fee that merchants pay for accepting digital payments. Currently, merchants already pay MDR on card transactions. For credit cards, MDR is usually around 1.5 percent and can reach up to 3 percent. Debit card payments attract lower MDR fees.

Reasons for Considering UPI Fees

The Finance Minister explained the rationale behind the proposed MDR fee. She said that charging MDR would help banks and fintech companies invest in infrastructure, innovation, and security. These investments would benefit all UPI users by improving the payment system.

Banks and fintech firms currently do not earn revenue from processing UPI transactions. This limits their ability to upgrade technology and expand services. The government believes that an MDR fee could address this issue.

Sitharaman also clarified that no final decision has been made. The UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI), is still reviewing the proposal. Any decision will occur after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026. This bill seeks to amend Section 10A of the Payment and Settlement Systems Act, 2007.

Possible MDR Fee Structures

The government has not announced specific details about the MDR fee for UPI. However, a Reuters report mentioned two proposals under consideration. The first proposal suggests an MDR of 0.3 percent to 0.5 percent on UPI transactions above Rs 2,000. This would apply to merchants with annual turnover exceeding Rs 1.5 crore. Transactions above Rs 2,000 make up only about 5 percent of all UPI transactions but account for 65 percent of the total transaction value.

The second proposal links the MDR fee to a merchant’s annual turnover, rather than the value of individual transactions. The government may also set a maximum cap on the fee charged. These measures would likely impact larger businesses rather than small retailers or neighborhood shops.

Consumers using UPI for daily expenses such as groceries, bill payments, or cab rides are unlikely to be affected. The proposed amendment would only give the government the authority to introduce such a fee in the future if it chooses to do so.