Last Updated:August 04, 2026, 14:22 IST
The proposed amendment itself does not impose any charge on UPI or other digital payment methods; it gives the government the legal authority to decide on it in future.
While the zero-MDR policy helped drive rapid adoption, a Parliamentary Standing Committee on Finance, in its report dated March 12, 2026, cautioned that the current model may not be financially viable over the long term. (File Photo)
The Centre on Tuesday introduced a Bill in Parliament proposing changes to the Payment and Settlement Systems Act, 2007, that would allow the government to impose a merchant discount rate (MDR) on one or more electronic payment modes, including the Unified Payments Interface (UPI), if it decides to do so in the future.
The proposed amendment itself does not impose any charge on UPI or other digital payment methods. Instead, it gives the government the legal authority to decide which electronic payment modes should continue to remain exempt from MDR and which may attract such charges.
The move comes weeks after reports indicated that the government was examining the possibility of introducing MDR on UPI transactions involving large merchants. According to a Moneycontrol report on July 17, the proposed fee could be below 0.5% and may apply to transactions above Rs 2,000.
What is MDR?
Merchant discount rate or MDR is the fee paid by merchants to banks and payment service providers for processing digital payment transactions. It is typically charged as a percentage of the transaction value.
Why UPI transactions currently attract zero MDR
The government abolished MDR on UPI payments from January 2020 to encourage digital transactions across the country. The decision significantly accelerated UPI adoption among both consumers and merchants by making digital payments free for businesses.
UPI has since emerged as India’s dominant digital payments platform. At present, it accounts for nearly 88% of all digital payment transactions, handling more than 23 billion transactions every month with a total value of around Rs 30 lakh crore.
Parliamentary panel flagged sustainability concerns
While the zero-MDR policy helped drive rapid adoption, a Parliamentary Standing Committee on Finance, in its report dated March 12, 2026, cautioned that the current model may not be financially viable over the long term.
The committee observed that “zero MDR was introduced to make digital transactions affordable and widely accessible”. However, it also warned that “the absence of MDR had made the UPI ecosystem financially unsustainable”.
According to the panel, UPI has the potential to grow nearly tenfold in the coming years, supported by India’s expanding economy, favourable demographics and wider geographical reach. It estimated that the platform could add around 600 million new users and process between 100 billion and 150 billion transactions every month over the next few years.
The central government has not disbursed the UPI subsidy for the last financial year. Payment companies have been claiming that for the next phase of growth, they would require a revenue model to invest to grow UPI.
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First Published:
August 04, 2026, 14:22 IST
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