The government on Saturday clarified that UPI users will not be burdened with transaction charges, and that any future merchant discount rate (MDR) will apply only to a limited set of merchant transactions above a specified threshold.

Even then, the MDR will be nominal and significantly lower than the rates typically charged on debit and credit card transactions, it said.

“The recent amendment to the Payment and Settlement Systems Act (PSS Act) has generated debate, with some misinterpreting it as a move to impose charges on ordinary users,” the finance ministry said in a statement. In reality, the amendment is an enabling provision designed to ensure UPI’s long-term sustainability, technological advancement, and resilience against emerging risks, it said.

“Consumers making payments will not face any transaction charges,” it said, adding that “all person-to-person transactions will continue to be free of charge.” It further said the “vast majority” of UPI transactions would continue to remain free for merchants. Any MDR, if introduced, would be “threshold-based and not blanketly levied to all”.

Once Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, the UPI and Services Steering Committee, headed by NPCI, will decide on the MDR, if any.

The government said the amendment should not be interpreted as an immediate move to impose charges on ordinary UPI users. “With exponential transaction volumes, the system requires significant and continuous upgrades in cybersecurity, fraud prevention, and infrastructure,” the government said. It also said expanding competition in the digital payments sector would require more companies to participate in the ecosystem.

The government further argued that dependence on subsidies alone would not be sufficient to support the next phase of UPI’s growth. “Reliance on subsidies alone is not viable for the next wave of growth,” it said, adding that a balanced framework was needed to ensure UPI remains “robust, inclusive, and future-ready”.

The finance ministry also rejected reports suggesting that external influences were driving the proposed policy changes. It pointed to UPI’s launch in 2016 and the decision to make the platform free for citizens and merchants from January 2020 as evidence of its long-term commitment to the digital payments system.

Since its launch in 2016-17, UPI has transformed India’s digital payments landscape, processing 2,366 crore transactions worth Rs 29.9 lakh crore in July 2026 alone.