Government clarifies UPI users will not be charged, says MDR may apply to select merchants

The government on Saturday clarified that UPI users will not face any transaction charges, while indicating that a Merchant Discount Rate (MDR), if introduced, would be restricted to a limited set of merchant transactions above a specified threshold. It said the proposed amendment to the Payment and Settlement Systems Act was only an enabling provision and did not amount to the blanket imposition of charges on UPI transactions.

In a statement, Finance Ministry said, “Consumers making payments will not face any transaction charges” and that “all Person-to-Person transactions will continue to be free of charge.” It further clarified that if MDR is introduced, it would apply only to “a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs.”

Finance Ministry also sought to make clear that the proposed framework would not result in a blanket charge on merchants. “The vast majority of the transactions will remain free of charge for merchants on UPI. MDR, if introduced, will only be threshold based and not blanketly levied to all,” it said.

The clarification comes amid a political row over the Taxation and Other Laws (Amendment) Bill, 2026, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007. The amendment has drawn criticism from Congress leader Jairam Ramesh, who has questioned the removal of the statutory zero-MDR protection and argued that government assurances cannot substitute for a legal safeguard.

Finance Minister Nirmala Sitharaman had earlier hit back at Ramesh, saying MDR, if introduced, would apply to merchants and not ordinary users. She had also rejected the suggestion that UPI users would have to pay for transactions.

The Ministry on Saturday said the decision on whether MDR should actually be introduced would come later. “Once the 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,” it said.

Defending the amendment, the Ministry said it was intended to ensure the long-term sustainability of UPI amid rapidly rising transaction volumes and the need for continued investment in cybersecurity, fraud prevention and infrastructure. “Reliance on subsidies alone is not viable for the next wave of growth,” it said, arguing that a balanced framework was needed to keep UPI “robust, inclusive, and future-ready.”

The government also rejected suggestions that external pressure was behind the proposed changes, calling such reports “unfounded, completely false and misleading.” It said the amendment should instead be viewed in the context of making India’s digital payments infrastructure sustainable and competitive.

Reiterating its position, the Ministry said, “UPI will remain free for citizens” and that there would be “no charges on everyday transactions on citizens.” Any future MDR, it said, would be nominal and restricted to a limited set of merchant transactions.

UPI processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone, according to the government. The platform is also operational in 11 foreign countries.

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