The Central Government is evaluating a proposal to reintroduce Merchant Discount Rate (MDR) on select UPI transactions above ₹2,000. While no final decision has been taken, proposed amendments to payment laws could create the legal framework for charging merchants on high-value business transactions, while keeping person-to-person (P2P) payments free.
The Government of India is considering bringing back Merchant Discount Rate (MDR) on certain high-value Unified Payments Interface (UPI) transactions. The proposal, currently under discussion, could allow payment service providers and banks to levy charges on business-related UPI payments exceeding ₹2,000.
Officials have clarified that the proposal remains at the evaluation stage, and no final decision has been taken regarding the implementation, timing or structure of the proposed charges. If approved, the charges are expected to apply only to merchants accepting digital payments and not to individual consumers making purchases.
The proposal has emerged following amendments introduced through the Taxation and Other Laws (Amendment) Bill, 2026, presented in Parliament by Finance Minister Nirmala Sitharaman.
The proposed amendments seek to remove existing legal provisions that currently prohibit banks and payment service providers from collecting Merchant Discount Rate on specified electronic payment methods, including UPI.
If the legislation is enacted, it would provide the legal authority for the government to introduce merchant charges in the future. However, the amendments themselves do not automatically impose any fees.
Instead, they establish the legal framework required for policymakers to implement such measures through separate government notifications if considered necessary.
According to reports, policymakers are examining a framework where UPI payments exceeding ₹2,000 made to businesses may attract a Merchant Discount Rate ranging between 0.25% and 0.5%.
Importantly, the proposal does not aim to impose charges on consumers. Instead, merchants receiving payments would bear the transaction fee, similar to existing practices followed for certain debit and credit card payments.
Additionally, person-to-person (P2P) UPI transfers are expected to remain completely free, ensuring that everyday money transfers between individuals are unaffected.
The government is also evaluating alternative approaches to ensure that smaller merchants are protected.
Rather than applying MDR solely based on transaction value, another proposal under discussion links merchant charges to annual business turnover.
Under such a system, large businesses processing significant digital payment volumes could become eligible for MDR, while small and medium-sized enterprises may continue enjoying fee-free UPI transactions.
This approach would help reduce the financial burden on small retailers while allowing payment ecosystem participants to generate revenue from larger commercial transactions.
Official estimates indicate that transactions above ₹2,000 account for only a small percentage of overall UPI payment volume.
Although these higher-value transactions represent nearly 65% of the total value processed, they contribute only about 5% of the total number of UPI transactions.
As a result, routine daily purchases such as groceries, vegetables, milk, fuel, medicines and local transportation are unlikely to be affected if merchant charges are introduced.
Most consumers conducting low-value UPI payments would continue using the platform without any direct cost.
The debate surrounding Merchant Discount Rate has continued for several years.
Banks, payment aggregators and fintech companies argue that maintaining a completely zero-fee UPI ecosystem limits their ability to invest in technology, cybersecurity, customer support and infrastructure expansion.
Industry stakeholders believe that a modest merchant fee on selected commercial transactions would create a more sustainable digital payments ecosystem while supporting continued innovation and service improvements.
Supporters of MDR argue that payment infrastructure requires continuous investment as transaction volumes continue growing rapidly across the country.
India's Unified Payments Interface remains one of the world's largest real-time digital payment systems. The platform has witnessed exceptional growth in recent years as consumers and businesses increasingly adopt digital transactions for everyday payments.
According to official figures, UPI processed approximately 23.7 billion transactions worth nearly ₹29.9 lakh crore during July 2026, highlighting its central role in India's digital economy.
The platform now supports millions of merchants and billions of monthly transactions, making it one of the country's most critical financial infrastructure networks.
Despite growing discussions around MDR, there is currently no change in how UPI operates for consumers or merchants.
Government officials have clarified that any future merchant charges would require a separate notification before implementation.
This means all UPI transactions continue to remain free under the existing rules, and users do not need to make any changes to their payment habits at this stage.
Any policy shift would likely involve detailed consultation with banks, payment service providers, fintech companies and merchant associations before being rolled out.
If introduced carefully, merchant charges on selected UPI transactions could provide additional revenue for payment ecosystem participants while supporting long-term infrastructure development.
However, policymakers will also need to balance industry sustainability with merchant affordability and consumer convenience.
The government is expected to consider multiple factors before taking a final decision, including financial inclusion, digital payment adoption, merchant acceptance and the long-term growth of India's cashless economy.
Conclusion
The government's proposal to permit Merchant Discount Rate on select UPI transactions above ₹2,000 signals an important policy discussion regarding the future sustainability of India's digital payment ecosystem. While no final decision has been taken, the proposed legal amendments could enable merchant charges on high-value business transactions without affecting consumers or person-to-person transfers. As UPI continues to dominate digital payments in India, any future policy changes will likely aim to balance innovation, infrastructure investment and widespread adoption.