[Update] Now, Finance Ministry Rules Out Consumer UPI Charges Amid MDR Debate

Update | August 8, 21:16 ISST

Addressing concerns over merchant discount rates (MDR) on UPI, the finance ministry categorically clarified that consumers will not be charged for making payments through the digital payments network. It added that person-to-person (P2P) UPI transactions will continue to remain free. 

The ministry said that if MDR is introduced, it would apply only to a limited set of merchant transactions above a specified threshold and be levied at a nominal rate. 

The clarification comes after the Centre proposed amendments to the Payment and Settlement Systems Act, 2007, through the Taxation and Other Laws (Amendment) Bill, 2026. The proposed changes would empower the government to prescribe MDR for specified electronic payment transactions in the future but would not automatically introduce any charges. 

According to the ministry, the proposed amendment is merely an “enabling provision” aimed at ensuring the long-term sustainability, technological advancement and resilience of India’s digital payments ecosystem. 

“To expand UPI further into rural and semi-urban areas and maintain competitiveness, the UPI ecosystem must be self-sustainable and affordable. The amendment to the PSS Act is a forward-looking step to ensure that UPI continues to thrive as a secure, affordable, inclusive, and globally recognised payment system,” the ministry said.

Original | August 8, 15:47 IST

The Payments Council of India (PCI) has clarified that UPI payments will remain free for consumers amid growing speculation over the possible reintroduction of the merchant discount rate (MDR) on select UPI transactions.

“UPI will continue to remain free for consumers,” the industry body said in a post on X, adding that small merchants, including kirana stores and local vendors, will continue to remain protected from MDR charges.

The clarification came after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on Thursday (August 6). The Bill proposes amendments to the Payment and Settlement Systems Act, 2007, enabling the government to prescribe MDR for certain electronic payment transactions. 

While the framework is yet to be finalised, the government is expected to levy an MDR of 0.25% to 0.4% on business UPI transactions above ₹2,000, while person-to-person (P2P) UPI payments are expected to remain exempt. 

UPI MDR: Who Will Pay?

The PCI said any merchant service charges, where applicable, would remain commercial arrangements between merchants and payment service providers and would not be passed on to consumers.

“Merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not mean that consumers pay to use digital payments,” the council said. 

Earlier this week, finance minister Nirmala Sitharaman also clarified that MDR would apply only on merchants and not end users.

“MDR applies only on the merchants and not on the end users/customers. It will support the banks and fintech to invest more on infrastructure, innovation & security. All users of UPI will reap the benefits of this investment,” Sitharaman said in a post on X.

She added that the UPI and Services Steering Committee headed by the National Payments Corporation of India (NPCI) is yet to decide on the MDR. The decision will be taken after the Parliament passes the Bill, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007.

On Wednesday (August 5), RBI Governor Sanjay Malhotra said someone would have to pay the costs for maintaining and growing the digital payments infrastructure. 

Industry Welcomes The Move

Meanwhile, PhonePe CEO Sameer Nigam today reiterated that consumers would not be charged for making UPI payments.

“UPI is and will remain free for all Indian consumers! Consumers will NOT BE CHARGED anything for making UPI payments,” Nigam said in a post on X.

Razorpay CEO Harshil Mathur said UPI should remain free for consumers and small businesses should continue to be protected.

Earlier this week, Pine Labs CEO Amrish Rau, while applauding the Centre’s move to amend the Payment and Settlement Systems Act, 2007, said that the zero-MDR regime had slowed the growth pace of the UPI ecosystem in the past six years. He added that investments for building and expanding digital payments infrastructure ballooned almost 300% in the past 12-24 months.  

Notably, UPI has remained free for consumers and operates under a zero-MDR regime for merchants since January 2020, when the government waived merchant charges to accelerate digital payment adoption. 

However, as transaction volumes have surged, banks, fintechs and payment service providers have consistently pushed for the reintroduction of MDR on select merchant transactions, saying the current model is financially unsustainable given the growing investments required in infrastructure, cybersecurity, fraud prevention, compliance, and customer support. 

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