Guwahati: The Centre has indicated that it may introduce a nominal Merchant Discount Rate (MDR) on a limited category of UPI merchant transactions above a specified threshold, while maintaining that payments between individuals and the vast majority of UPI transactions will continue to remain free.
The Ministry of Finance said on Saturday that any MDR introduced in the future would not apply universally to merchant transactions. Instead, charges would be restricted to selected transactions above a certain value and would be significantly lower than the MDR currently applicable to debit and credit card payments.
The ministry said the proposed framework would ensure that most UPI transactions remain free for merchants. Any charge, if introduced, would be based on a threshold rather than being imposed as a blanket fee.
The clarification follows discussions around the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to Section 10A of the Payment and Settlement Systems Act, 2007.
According to the Finance Ministry, if Parliament passes the proposed legislation, the decision on whether to introduce MDR and determine its structure would be taken by the UPI and Services Steering Committee under the National Payments Corporation of India (NPCI).
The government stressed that the proposed amendment is only an enabling provision and does not amount to an immediate introduction of charges on UPI payments.
“UPI will remain free for citizens,” the ministry said, adding that person-to-person transactions would also continue to be exempt from any MDR.
The government said the proposed change is aimed at addressing the growing costs associated with maintaining and expanding India’s digital payments infrastructure.
With UPI transactions increasing rapidly, the ministry said continued investment is required in areas such as cybersecurity, fraud prevention and payment infrastructure.
The Centre also argued that the digital payments ecosystem needs a sustainable revenue model to support further expansion and encourage more companies to invest in the sector.
According to the ministry, depending solely on government subsidies would not be sustainable as UPI enters its next phase of growth. It said a balanced approach was necessary to ensure that the payments platform remains secure, inclusive and capable of supporting future demand.
The government said the proposed amendment forms part of a broader effort to strengthen India’s digital payment ecosystem and ensure that the country’s rapidly expanding digital economy is supported by a sustainable and competitive infrastructure.
The Finance Ministry also dismissed reports claiming that external forces had influenced the proposed changes. It described such reports as “unfounded, completely false and misleading.”