UPI Payment Update: If you use UPI, this news could be very significant for you. UPI has once again become a topic of discussion across the country. A proposal to amend the Payment and Settlement Systems Act has been tabled in Parliament. This has raised questions about whether the Merchant Discount Rate (MDR) might be reintroduced for UPI payments in the future. However, Finance Minister Nirmala Sitharaman has clarified that any decision on this matter will be taken by the relevant committee later, and there is no need for the public to panic at this stage.

What is the issue?

The government has proposed certain amendments to the Payment and Settlement Systems Act in Parliament. These amendments could create a legal framework to impose MDR on UPI transactions in the future, should the need arise. This does not mean that UPI charges will start immediately. No decision has been made yet regarding whether charges will be levied, how much they would be, or which transactions they would apply to.

What is MDR?

MDR is the fee that shopkeepers or merchants pay to banks and payment service providers for accepting digital payments. When a customer makes a payment by card or digital means, there is a cost associated with processing the transaction; the MDR is charged to the merchant to cover it. It is important to note that this fee is charged to the merchant, not the customer.

Will the general public have to pay to use UPI?

According to reports, no such decision has been made. Finance Minister Nirmala Sitharaman has clarified that even if MDR is implemented in the future, it will apply to merchants, not directly to consumers. However, some experts believe that if merchants face increased costs, they might eventually offset them by raising product prices or encouraging customers to pay in cash.

What did the government say?

According to Finance Minister Nirmala Sitharaman, no final decision regarding MDR on UPI has been taken yet. A decision on this matter will be made by the NPCI’s Steering Committee on UPI and Service Charges. The next steps will follow the passage of the relevant amendment bill in Parliament. The primary objective of MDR would be to boost investment in digital payment infrastructure, security, and new technologies.

Why is there currently no charge on UPI?

It is worth noting that the government abolished MDR on RuPay debit cards and UPI transactions starting in January 2020. The clear objective behind this decision was to encourage more people to adopt digital payments and to reduce cash transactions. This is why millions of people in India use UPI daily without incurring any extra charges.

Why are payment companies demanding MDR?

Many digital payment companies argue that processing every transaction entails a cost. Continuous investment is required in servers, cybersecurity, and technical infrastructure. The absence of MDR on UPI limits these companies’ revenue. As transaction volumes rise, additional resources are needed to upgrade the system; this is the reason behind the demand for MDR.

What is the current MDR on card payments?

Typically, an MDR of up to 1.5% is charged on credit card payments, while for debit cards, it can be around 0.9%. In contrast, no MDR is currently charged on UPI payments.

What does the RBI say?

RBI Governor Sanjay Malhotra stated that it would be premature to comment on the MDR issue on UPI at this stage. However, they emphasised that the country’s digital payment system is growing rapidly and that a sustainable funding model may be required to keep it robust in the future.

Could this be implemented for large merchants first?

According to some media reports, if MDR is implemented in the future, it might initially be limited to large businesses or high-value transactions. However, the government has not made any official announcement regarding this.

What did the BJP MP say?

BJP MP and Secretary General of the traders’ body CAIT, Praveen Khandelwal, stated that the bill’s final provisions need to be revealed first. He believes that if the government makes any changes, there will be a solid reason behind them. He also added that a nominal fee could be accepted if better services are provided. Meanwhile, the Congress party targeted the government, claiming that charges could be imposed on UPI payments in the future, thereby placing an additional burden on the public.

What is the public reaction on social media?

Mixed reactions are emerging on social media regarding this issue. Some people argue that if MDR is imposed on merchants, they might pass the cost on to customers. On the other hand, many believe that UPI’s greatest strength is its free service, and imposing charges on it could drive people back to cash payments.

Can the RBI itself bear the cost of the UPI system?

Experts believe the RBI has sufficient resources to help operate the UPI system. Conversely, the banking sector argues that maintaining the ever-increasing volume of transactions entails high costs, necessitating a sustainable funding mechanism.

What happens if MDR is implemented?

It remains to be seen—following the passage of the relevant bill in Parliament and a decision by the concerned committee—whether the Merchant Discount Rate (MDR) will actually be implemented. Key questions include which merchants would be covered, the transaction value thresholds involved, and the potential impact on the general public.

Conclusion
The ‘Taxation and Other Laws (Amendment) Bill, 2026,’ passed by the Lok Sabha, has paved the way for the government to implement the Merchant Discount Rate (MDR) on UPI and other digital payment modes. However, this does not mean that charges have been immediately imposed on UPI payments. The government has neither fixed the MDR rate nor announced when it will apply or on which transactions. Under current regulations, even if MDR is implemented later, the merchant—not the customer—would bear the cost. Experts believe businesses might incorporate this additional expense into the prices of goods and services, potentially having an indirect impact on consumers.