The Centre has introduced the Taxation and Other Laws (Amendment) Bill, 2026, which could allow the government to bring back Merchant Discount Rate (MDR) on certain UPI transactions in the future. While UPI payments remain free for now, the proposed law gives the government the power to introduce merchant charges if needed.
What Is The New UPI Policy Proposal?
Finance Minister Nirmala Sitharaman has introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha. The Bill proposes amendments to the Payment and Settlement Systems Act, 2007, along with changes to the Income Tax Act and Finance Act. One of the key proposals is to remove the legal restriction that currently prevents banks and payment service providers from charging Merchant Discount Rate (MDR) on notified digital payment modes.
Will UPI Payments Become Chargeable?
No. UPI payments will continue to remain free for now. The Bill does not immediately impose any charge on UPI transactions. Instead, it gives the government the legal authority to introduce MDR in the future if it decides to do so. Any final decision on charges, transaction limits or implementation will be announced separately.
What Is Merchant Discount Rate (MDR)?
Merchant Discount Rate (MDR) is a fee paid by businesses or merchants to banks and payment service providers for processing digital payments. Customers generally do not pay this fee directly. It is usually borne by merchants accepting digital payments.
Who Could Be Affected If MDR Is Introduced?
According to reports, the government is considering applying MDR only in limited cases. The proposed model may apply to:
•   UPI transactions above Rs 2,000
•   Merchants with an annual turnover of more than Rs 1.5 crore
•   An MDR rate below 0.5%
However, these proposals have not been finalised, and the government has not announced any official rate or implementation date.
Will Customers Have To Pay Extra?
At present, there is no indication that customers will have to pay any fee for using UPI. If MDR is introduced, the charge is expected to be paid by eligible merchants rather than consumers. Smaller businesses are also likely to continue receiving exemptions.
Why Was UPI Made Free Earlier?
The government removed MDR on UPI and RuPay payments from January 1, 2020, to encourage digital payments across the country. The policy was introduced to make cashless payments affordable for both customers and businesses, helping increase the adoption of UPI, especially among small merchants.
Why Is The Government Considering Bringing MDR Back?
A Standing Committee on Finance report released in March 2026 said that while the zero-MDR policy helped expand digital payments, it also created financial challenges for the UPI ecosystem. The committee observed that payment service providers have limited revenue for maintaining and expanding digital payment infrastructure. It recommended exploring a self sustaining revenue model instead of relying entirely on government support. The report said creating a sustainable funding system is important for the long term growth of India’s digital payments ecosystem.
