The government has proposed changes to India’s payment laws that can pave the way for merchant charges on select UPI transactions in the future. The proposal, introduced as part of amendments to the Payment and Settlement Systems Act by Finance Minister Nirmala Sitharaman, would give authorities the legal framework to impose a Merchant Discount Rate (MDR) on notified digital payment methods, including UPI.
If the amendments are approved by Parliament, UPI payments will not immediately become chargeable. Instead, the government will get the authority to introduce merchant fees at a later stage via separate notifications.
As per the Reuters report, one of the proposals under discussion is an MDR ranging between 0.3 per cent and 0.5 per cent on UPI transactions exceeding Rs 2,000. The charge would reportedly apply only to merchants with an annual turnover above Rs 1.5 crore. Policymakers are also evaluating an alternative model where fees can be determined by a merchant’s annual turnover rather than the value of individual transactions. A cap on the maximum charge is also being considered.
This comes after companies and industry stakeholders have repeatedly argued that the current zero-MDR model for UPI makes it difficult to maintain and expand digital payment infrastructure. Unlike card payments, where merchants already pay processing fees, UPI transactions currently do not generate similar revenue for banks and payment service providers.
If implemented, the fee would be paid by merchants rather than consumers. Smaller businesses are expected to remain outside the scope of proposal with larger merchants likely to bear the cost. Whether businesses choose to absorb the fee or pass it on to customers would depend on their individual pricing strategies.
So far, UPI is among the most used payment platforms in India. As per official data, the platform processed around 23.7 billion transactions worth nearly Rs 29.9 lakh crore in the previous month. Reports indicate that transactions above Rs 2,000 account for only about 5 per cent of total UPI payments but contribute nearly 65 per cent of the total transaction value.