A merchant discount rate (MDR) of 0.3% on UPI transactions of Rs 2,000 and above is expected to be announced within two weeks, sources said on Thursday.
The Department of Financial Services will likely issue a gazette notification within a week specifying the electronic payment modes that would continue to receive statutory protection from charges. Thereafter, the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), will determine the MDR, its scope and structure, sources said.
MDR is a fee paid by businesses to payment processors for accepting digital payments.
The government has assured that UPI transactions will remain free for consumers. The assurance was made during a debate in Parliament on the Taxation and Other Laws (Amendment) Bill, 2026, which amended Section 10A of the Payment and Settlement Systems Act, 2007, to pave the way for MDR on UPI transactions above a certain threshold.
Regulatory Framework
An MDR of up to 0.3% of the transaction value applied to UPI person-to-merchant transactions until December 2019. Zero MDR was introduced in January 2020 to accelerate digital payment adoption and encourage a shift from cash to digital payments. The government subsequently introduced an incentive scheme to support banks and other ecosystem participants and encourage digital payments by providing an incentive equivalent to 0.15% MDR on UPI transactions up to Rs 2,000.
With a massive jump in UPI transactions since the Covid-19 pandemic, banks and other payment intermediaries have ramped up investment in payment infrastructure, leading to industry calls for the restoration of charges to make the system sustainable.
Reintroduction of MDR at 0.3% on UPI transactions above a threshold would still be much lower than the prevailing MDR of 1-3% on credit cards and up to 0.9% on debit card transactions.
Unified Payments Interface (UPI) is the world’s largest real-time payment system by volume, with a share of nearly 50%. UPI accounted for 85% of India’s digital payment transactions by volume in 2025-26. UPI processed 241.62 billion transactions worth Rs 314.23 lakh crore in FY26.
Industry Impact
The Parliamentary Standing Committee on Finance recently called for the early implementation of a tiered MDR framework for UPI transactions, warning that delays could leave payment service providers dependent on inadequate government subsidies and weaken investment in payment infrastructure.
The panel flagged the sharp mismatch between the Rs 2,000 crore budgetary allocation for 2026-27 and the industry’s estimated operational cost of Rs 20,700 crore for running UPI. It said the allocation covered barely 10% of actual operational costs. The estimate is based on an operational cost of Rs 1.38 per transaction and around 150 billion P2M (person-to-merchant) transactions recorded last year.
To reduce the burden on the exchequer, the Department of Financial Services had told the panel that it was examining two options: restoring MDR for certain high-value transactions or merchants, and introducing a tiered incentive structure to “phase out government support in the next few years.”
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
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