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Mumbai.UPI Fee May Return After Six Years as Government Proposes Legal Changes to Payment Rules
The Union Finance Ministry has proposed amendments to India's digital payments law that could pave the way for the return of Merchant Discount Rate (MDR) on UPI transactions after six years. While the proposal does not immediately impose any charges on UPI users, it would give the government the legal authority to decide in future which digital payment modes should remain free and which could attract fees. The move is aimed at creating a financially sustainable payment ecosystem without disrupting the country's rapid digital payments growth.
What Has the Government Proposed?
The Finance Ministry has suggested removing or amending Section 10A of the Payment and Settlement Systems Act, 2007. At present, this provision prevents banks and payment service providers from levying any charges on UPI and certain other digital payment modes.
If the amendment is approved, the government will gain the flexibility to decide, through future notifications, whether specific digital payment methods should remain free or carry transaction charges.
No Immediate Charges on UPI Users
The proposed legal change does not mean UPI payments will become chargeable immediately. It only creates the legal framework that would allow the government to introduce charges in the future if required.
Any decision to levy fees would require a separate government notification specifying the categories of transactions that would attract charges and those that would continue to remain free.
What Is MDR and Who Pays It?
Merchant Discount Rate (MDR) is the fee paid by merchants to banks and payment service providers for processing digital transactions. The charge compensates banks, payment gateways and fintech companies for securely handling payment transactions.
If MDR is reintroduced on UPI payments, the cost would primarily be borne by merchants rather than consumers. Individuals making routine UPI payments are not expected to pay any direct fee.
Why Was MDR Removed?
The government abolished MDR on UPI and RuPay debit card transactions in January 2020 to encourage digital payments and accelerate India's transition towards a cashless economy.
The policy played a significant role in the explosive growth of UPI, which has since become the country's most widely used digital payment platform.
Why Is the Government Considering the Change?
Operating the UPI ecosystem without a stable revenue stream has increasingly become a financial challenge for banks and payment companies.
In March this year, Parliament's Standing Committee on Finance expressed concern that the zero-MDR policy was causing financial strain on the payments industry. The committee recommended developing a sustainable revenue model to ensure the long-term viability of digital payment infrastructure.
Government Incentive Still Falls Short
For FY2026-27, the government has allocated ₹2,000 crore as an incentive to support RuPay debit card and low-value BHIM-UPI merchant transactions. The scheme was introduced in FY2021-22.
However, the parliamentary committee observed that the incentive covers only a small portion of the actual costs incurred by banks and payment service providers.
What Could Happen Next?
If Parliament approves the amendment, the government is expected to review the payment ecosystem before taking any further decision. Industry observers believe a phased approach could be adopted, with modest MDR charges potentially applicable only to large merchants or high-value transactions.
Small merchants and everyday consumer payments are likely to continue enjoying free UPI services.
What Is MDR?
Merchant Discount Rate is the fee charged to a merchant whenever a customer pays using a debit card, credit card or eligible digital payment method. The fee covers the cost of processing, securing and settling the transaction across banks, payment gateways and technology providers.
What It Means for Consumers
There is no reason for UPI users to worry at this stage. Even if MDR is reintroduced in the future, the charge is typically payable by merchants, not customers. Person-to-person UPI transfers are also expected to remain completely free under the current policy approach.
