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The Indian government is considering allowing a Merchant Discount Rate (MDR) on some UPI transactions after Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026. The bill amends the Payment and Settlement Systems Act to let the Centre notify digital payment modes that can attract charges.

UPI has remained free for users and merchants since 2020, driving massive adoption with over 23 billion transactions monthly. However, banks, fintechs and payment providers incur heavy costs for servers, cybersecurity, innovation and expansion. Industry estimates put annual infrastructure costs at around ₹15,000 crore. Officials argue public funds alone cannot sustain further growth, including cross-border expansion.

Finance Minister Nirmala Sitharaman clarified that any MDR would apply only to merchants—not end users—and would support investment in security and technology. Possible models include charges of 0.3-0.5% on transactions above ₹2,000 for large merchants (turnover over ₹1-1.5 crore), while small payments and peer-to-peer transfers stay free. No decision has been finalised yet; the NPCI-led committee will review it after the bill is fully cleared.