UPI payments remain free for customers as government clarifies proposed MDR framework amid growing controversy

08 August, 2026
UPI payments remain free for customers as government clarifies proposed MDR framework amid growing controversy

Winning Bizness Desk

Mumbai.UPI payments remain free for customers as government clarifies proposed MDR framework amid growing controversy

India’s millions of daily UPI users have little reason to worry about being charged for routine digital payments, with the government clarifying that customers will continue to use the system for free. The clarification came after a proposed amendment in Parliament triggered concerns that UPI transactions could eventually attract fees, particularly for higher-value payments.

New bill triggers fresh debate over UPI charges

The controversy centres on the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to Section 10A of the Payment and Settlement Systems Act, 2007. The amendment seeks to create a legal framework under which MDR could potentially be imposed on certain UPI transactions in future. The proposal immediately drew criticism from the Opposition, which argued that removing the existing protection could eventually pave the way for charges on digital payments.

Congress leader Jairam Ramesh said on X that the proposed amendment removes the legal safeguard that has so far kept UPI transactions completely free. He alleged that the move could open the door to MDR and ultimately burden consumers. Finance Minister Nirmala Sitharaman, however, rejected the claim and stressed that MDR is a charge on merchants, not customers. Revenue generated through such charges could help banks and fintech companies strengthen infrastructure, innovation and security supporting the UPI ecosystem.

No immediate MDR decision has been taken yet

Sitharaman has clarified that no MDR has been imposed at present. Even if Parliament passes the Bill, the final decision will be taken by the National Payments Corporation of India’s UPI and Services Steering Committee. The proposal, therefore, remains at the discussion stage.

The proposed framework under consideration includes:

  • UPI transactions above Rs 2,000 could attract MDR of 0.3% to 0.5%.
  • The proposed charge would apply only to large merchants with annual turnover above Rs 1.5 crore.
  • Small traders, grocery shops and vegetable sellers would remain outside its proposed ambit.
  • Ordinary customers would not be directly charged for making UPI payments.

MDR is a merchant fee, not customer charge

MDR, or Merchant Discount Rate, is the fee paid by a merchant to banks or payment service providers for processing digital payments. It is not deducted directly from the customer’s account. At present, MDR on UPI and RuPay debit card transactions is zero under existing rules.

If the proposed system is eventually approved, only large businesses meeting the prescribed turnover threshold would have to bear the charge on eligible high-value UPI transactions. The proposal is therefore aimed at creating a funding mechanism for the digital payments ecosystem without shifting the cost directly to everyday users.

RBI says digital payments need sustainable funding

RBI Governor Sanjay Malhotra has also urged caution against reaching conclusions before the legislative process is complete. Speaking after the monetary policy review, he said discussions were still under way and the government was only proposing changes to the law.

The broader issue is how India will fund the rapidly expanding digital payments network. Banks and fintech companies incur significant costs in maintaining payment infrastructure and strengthening cybersecurity.

At the same time, the proposed approach seeks to protect ordinary users:

  • Customers will continue making routine UPI payments without a direct fee.
  • Smaller merchants are proposed to remain outside the MDR framework.
  • Potential revenue would support infrastructure, innovation and security.
  • The final framework will depend on the legislative and regulatory process.

Section 10A was created to protect free digital payments

Section 10A was introduced to promote digital payments and prohibited MDR on UPI and RuPay transactions. The proposed amendment would potentially give the government and NPCI greater flexibility to introduce limited charges on specified large-value commercial transactions.

The immediate takeaway for UPI users is clear: there is no customer charge at present. The proposed MDR framework, if approved, would target certain large merchants and high-value transactions rather than ordinary consumers. The larger policy debate is about ensuring that India’s UPI infrastructure remains secure, affordable and financially sustainable as its usage continues to grow.