The Central government has proposed amendments to the Payment and Settlement Systems Act that could allow merchant charges on select Unified Payments Interface (UPI) transactions in the future. The proposed change, introduced in Parliament by Finance Minister Nirmala Sitharaman, does not impose any charges immediately but provides a legal framework for introducing a Merchant Discount Rate (MDR) if the government decides to do so later.
One proposal under consideration is to levy an MDR of 0.3% to 0.5% on UPI transactions above ₹2,000. The charge is expected to apply only to merchants with an annual turnover exceeding ₹1.5 crore. Under this proposal, consumers would continue to make UPI payments without paying any additional fee, while smaller businesses may remain exempt.
Merchant Discount Rate is a fee paid by merchants to banks and payment service providers for processing digital payments. While merchants currently pay processing charges on credit and debit card transactions, UPI payments have remained free since the platform's expansion, contributing to its widespread adoption across India.
The proposal comes as UPI continues to register record growth. Official data shows the platform processed 23.6 billion transactions worth ₹29.9 trillion in July, making it one of the world's largest real-time payment systems. PhonePe and Google Pay continue to account for a significant share of these transactions.
The proposed amendment is currently only an enabling legal provision. The government has not announced whether MDR will be introduced, what the final rate would be, or when any such change could take effect. Until a formal decision is made, UPI payments will continue to remain free under the existing system.
