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The Government stated categorically that consumers making UPI payments will face no transaction charges and that all Person-to-Person transactions will remain free.
Any Merchant Discount Rate, when introduced, will apply only to a limited set of merchant transactions above a threshold, at a nominal rate far lower than debit or credit card MDRs.
The Taxation and Other Laws (Amendment) Bill, 2026 proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007 as an enabling provision.
Once Parliament passes the Bill, the 'UPI and Services Steering Committee' headed by NPCI will decide on the MDR, if any.
UPI processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone and is live in 11 foreign countries.
The Merchant Discount Rate is the fee a merchant pays for accepting a digital payment, deducted from the amount received. It is not charged to the customer. The fee is shared among the parties that make the transaction work — the customer's bank, the merchant's bank, the payment network and the app or gateway. On card payments MDR is standard practice and is what funds the network's operation. On UPI and RuPay debit cards the government mandated zero MDR from January 2020, which made the payment free at both ends but left the running costs to be met by the banks and the exchequer. The debate is therefore not about charging consumers, but about who pays for the network's upkeep as volumes grow.
Simple Analogy: MDR is the shopkeeper's card-machine fee, not the customer's. Setting it to zero does not remove the cost of the machine — it only moves the question of who covers it.
The statute governing payment systems in India; its Section 10A is the provision the Taxation and Other Laws (Amendment) Bill, 2026 proposes to amend.
The Bill carrying the amendment; the MDR decision follows only after Parliament passes it.
Prescribes electronic modes of payment that specified businesses must offer — the list against which the no-charge bar has historically operated.
Umbrella organisation for retail payment and settlement systems in India; operates UPI, IMPS, RuPay, NACH, Bharat Bill Payment System, AePS, FASTag and the Cheque Truncation System. It will head the UPI and Services Steering Committee that decides on MDR.
Regulator of payment and settlement systems under the PSS Act, 2007
Issued this clarification and pilots the amending legislation
The mandate that made UPI and RuPay debit card transactions free is the baseline the current amendment would modify for a narrow band of merchants.
The release frames the amendment around expanding UPI into rural and semi-urban areas, where the cost of maintaining low-value transaction infrastructure is highest.
UPI being live in 11 foreign countries makes its long-term financial sustainability a question of external credibility as well as domestic policy.
GS Paper 3 > Indian Economy — banking, digital payments and financial inclusion
General Awareness > Banking and digital payments
Banking Awareness > Payment systems, NPCI and the PSS Act
General Awareness > Economy and digital India
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
Answer: Mobile wallets will not be necessary for online payments.
Consider the following statements: 1. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country. 2. NPCI has launched RuPay, a card payment scheme. Which of the statements given above is/are correct?
Answer: Both 1 and 2
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?
Answer: The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
With reference to digital payments, consider the following statements: 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account. 2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication. Which of the statements given above is/are correct?
Answer: 1 only
The fee a merchant pays for accepting a digital payment, shared among the banks, the network and the payment app; it is not charged to the customer.
Person-to-Person and Person-to-Merchant transactions; the release confirms all P2P transactions remain free.
A legal provision that creates the power to act without itself imposing the measure — the Government's description of the Section 10A amendment.
The committee headed by NPCI that will decide on MDR once Parliament passes the amending Bill.