The Centre is considering reintroducing the Merchant Discount Rate (MDR) on select high-value UPI merchant transactions, with payments above ₹2,000 emerging as the likely threshold. However, person-to-person (P2P) UPI transfers are expected to remain free, according to reports citing government sources.
The proposal follows the introduction of the Payment and Settlement Systems (Amendment) Bill in Parliament, which creates the legal framework for the government to notify MDR on certain digital payment modes, including UPI and RuPay. The legislation itself does not impose any fee but enables the government to introduce one through future notifications and RBI guidelines.
Officials are reportedly considering an MDR of 0.25 per cent to 0.4 per cent on eligible merchant transactions, although no final decision has been taken on either the rate or the implementation timeline. Discussions are also focused on limiting the levy to large merchants, while exempting smaller businesses and everyday consumer payments.
Government sources indicated that transactions above ₹2,000 account for only about 5 per cent of UPI transaction volume but nearly 65 per cent of the total transaction value, making them a potential source of sustainable revenue for banks and payment service providers. Routine purchases such as groceries, vegetables, milk and local transport are unlikely to be affected if the proposal is implemented.
The move marks a significant policy shift from the zero-MDR regime introduced in 2020, which helped accelerate UPI adoption across the country. Since then, UPI has become India's dominant digital payment platform, processing 23.7 billion transactions worth ₹29.9 lakh crore in July alone.
Officials have clarified that no charges have been approved yet, and any future MDR framework would require a government notification, legislative backing where applicable, and detailed operational guidelines from the Reserve Bank of India before coming into effect.
