Government Proposes MDR on Select UPI Payments

The Union Ministry of Finance proposed amendments to the Payment and Settlement Systems Act, 2007, on 3 August 2026 to reintroduce Merchant Discount Rate on select digital payment modes. The proposal seeks to remove the zero MDR provision under Section 10A, which currently bars banks and payment system providers from levying charges on online transactions, including Unified Payments Interface and RuPay debit card payments.

Merchant Discount Rate in Digital Payments

Merchant Discount Rate is a fee paid by a merchant to the bank or payment service provider for processing card or digital transactions. In India, MDR has been used in payment systems such as debit cards, credit cards, and other electronic payment channels. The proposed change is linked to the financing of UPI expansion and the creation of a revenue model for the digital payments ecosystem. The government had abolished MDR on UPI and RuPay debit card transactions in January 2020 to promote digital payments.

Proposed Coverage and Exemptions

The proposed MDR is expected to apply mainly to large merchants. Some references place the threshold at annual turnover above Rs 50 crore or transactions above Rs 2,000, while consumers and small merchants with annual turnover up to Rs 1.5 crore are expected to remain exempt. The proposed MDR for UPI payments accepted by large merchants is not expected to exceed 0.5% of the transaction value. The Taxation and Other Laws (Amendment) Bill, 2026, is expected to be tabled in Parliament in the first week of August 2026.

UPI Growth and Policy Context

UPI transactions reached ₹29.9 lakh crore in July 2026, with more than 23 billion transactions recorded in the same month. A March 2026 report of the Parliamentary Standing Committee on Finance stated that the absence of MDR makes the UPI ecosystem financially unsustainable.

Important Facts for Exams

• Section 10A of the Payment and Settlement Systems Act, 2007 currently provides for zero MDR on specified digital transactions.
• Unified Payments Interface was launched by the National Payments Corporation of India for instant bank-to-bank transfers.
• RuPay is India’s domestic card network developed by the National Payments Corporation of India.
• Merchant Discount Rate is usually expressed as a percentage of the transaction value.