UPI Users Won’t Pay Any Charges, Clarifies FM Nirmala Sitharaman After Parliament Passes Bill

Finance Minister Nirmala Sitharaman clarified that the new amendment does not impose UPI charges on users, while any future MDR would target limited high-value merchant transactions.

UPI Users Will Not Pay Charges: FM Nirmala Sitharaman Clarifies MDR Provision

Parliament has passed the Taxation and Other Laws (Amendment) Bill, with Finance Minister Nirmala Sitharaman clarifying that the legislation does not introduce any transaction fee or tax on people using UPI for payments.

The clarification comes amid concerns that the amendment could result in charges being imposed on UPI transactions. Sitharaman said the provision is only an enabling measure and that no Merchant Discount Rate (MDR) framework has been finalised.

Parliament Approves Taxation Amendment Bill

The Bill was cleared by the Lok Sabha last week before being taken up by the Rajya Sabha. The Upper House passed it through a voice vote following a brief discussion and the Finance Minister's response.

During the discussion, Sitharaman addressed concerns surrounding the proposed changes to the payment system and reiterated that ordinary UPI users would not be charged under the amendment.

She explained that the amendment does not itself create an MDR system or introduce a payment fee for consumers.

UPI Charges Not Imposed Under New Amendment

The Finance Minister said the amendment to Section 10A of the Payment and Settlement Systems Act is intended only to provide the legal framework that could enable future decisions regarding MDR.

According to Sitharaman, the provision does not currently establish any transaction charge for UPI users.

She further explained that the UPI and Services Steering Committee of the National Payments Corporation of India (NPCI) would consider the matter after the parliamentary approval.

This means that no specific MDR structure, rate or implementation mechanism has been finalised at present.

What Is MDR and How Could It Affect UPI?

Merchant Discount Rate, commonly known as MDR, is a fee associated with certain digital payment transactions. It is generally paid by merchants to payment ecosystem participants for processing transactions.

The government has clarified that if an MDR mechanism is introduced for UPI in the future, it would not apply universally to every transaction.

Instead, the proposal could focus on a limited category of high-value merchant transactions crossing a specified threshold.

The government has also indicated that any such charge would be nominal and significantly lower than the MDR commonly associated with debit and credit card payments.

Regular UPI Payments Expected to Remain Free

The government has sought to reassure users and merchants that everyday UPI payments will continue without charges under the current framework.

Transactions involving common purchases such as milk, vegetables, groceries and other daily essentials are expected to remain outside any potential MDR mechanism.

Officials have indicated that more than 90% of transactions could remain unaffected if such a threshold-based system is introduced.

This approach would ensure that UPI continues to serve as a convenient payment option for routine low-value transactions.

Person-to-Person UPI Transactions to Stay Free

The Finance Ministry has also clarified that person-to-person UPI payments will continue to remain free under the proposed framework.

This means users transferring money to family members, friends or other individuals through UPI would not be required to pay a transaction fee as a result of the amendment.

The government has stressed that the proposed provision should not be interpreted as an immediate introduction of UPI charges.

No MDR Framework Finalised Yet

A key point in the government's clarification is that no MDR framework has been approved or finalised. The amendment merely creates an enabling provision. Any decision regarding the introduction of MDR would involve further consideration by the relevant authorities.

Therefore, the current legislation does not mean that consumers will suddenly start paying fees whenever they scan a UPI QR code or make a digital payment.

Any future changes would depend on the framework eventually considered and approved by the concerned authorities.

UPI's Role in India's Digital Payment Growth

UPI was launched in 2016 and has become one of India's most widely used digital payment systems. The government highlighted UPI's role in expanding digital payments across the country and described it as the world's largest real-time interoperable payment system.

Since January 2020, UPI transactions have remained free for consumers and merchants under the existing framework.

The government's latest clarification indicates that the objective is to preserve the accessibility of UPI for everyday transactions while potentially creating a mechanism for addressing costs associated with certain high-value merchant payments.

What the Latest UPI Decision Means for Users

For ordinary UPI users, the key takeaway is that there is no new UPI transaction charge under the amendment.

If MDR is considered in the future, the government's current indication is that it would be limited to specified high-value merchant transactions rather than regular everyday payments.

As a result, consumers can continue using UPI for routine purchases and person-to-person transfers without expecting a new charge based solely on the passage of the amendment.

Conclusion

The passage of the Taxation and Other Laws (Amendment) Bill does not introduce charges for UPI users. FM Nirmala Sitharaman has clarified that the provision only enables future consideration of MDR. Any potential fee would be limited to specified high-value merchant transactions, while everyday UPI payments are expected to remain free.