Business
oh-Ashish Rana
The government is now planning to change the legal framework whereby the Merchant Discount Rate (MDR) will be zero priced for UPI and RuPay debit card transactions from January 2020. The move may now allow MDR to be allowed for some digital payments in the future, but no new UPI charges have been introduced so far.
The Government of India is changing the legal framework, which requires a zero merchant discount rate (MDR) for UPI and RuPay transactions from 2020, potentially allowing for select digital payments to be charged in the future, primarily for merchants, possibly for UPI transactions over Rs 2,000.
The Lok Sabha has passed a bill to this effect and parliamentary action is now required to amend the law.
What is the seller’s discount rate?
The merchant discount rate, known as MDR, is the fee that merchants pay to banks and payment service providers for processing digital payments. This is usually a percentage of the transaction amount that helps derive the cost of maintaining the payment infrastructure.
Earlier in January 2020, NPCI had set a cap rate of 0.30 percent for UPI trade transactions, which was later revised to zero in 2020 for BHIM-UPI transactions and RuPay debit card payments to encourage greater digital payments capabilities.
What did the government propose?
This new change now removes the legal restriction under section 10A of the Payment and Settlement Systems Act 2007, which allows the government to allow fees to be collected for notified electronic payments through future notifications.
This does not mean that customers will now start paying UPI fees immediately. Now, the exact MDR rate for covered transactions and merchant categories will depend on the regulations or notifications that will be issued later.
According to reports, the government is considering MDR mainly for UPI payments above Rs 2,000 made to large merchants, while small value transactions for small businesses may remain outside the process. However, the government has not yet notified this structure.
Will customers have to pay for UPI?
MDR is a merchant-side fee that is mainly intended for businesses accepting payments from customers rather than customers making payments through UPI.
Even Finance Minister Nirmala Sitharaman also confirmed that any future MDR will only apply to merchants and not customers. However, the company will also consider introducing additional charges into the price of its products so that it directly impacts customers in some way, which also depends on how the policy is implemented.
Why is change important?
Discussions on MDR come at a time when UPI has emerged as India’s largest digital payment method. NPCI cites data that in May 2026 alone, over 23.2 billion transactions worth nearly Rs 29.9 crore were made through UPI.
The zero-MDR model has actually helped increase UPI payment volumes, but banks, payment companies and other companies in the ecosystem have always questioned the need for a revenue model to handle such large transactions. Now, this plan could be a huge step in the development of UPI transaction method in India.