India’s prominent digital payment system, UPI, is under renewed scrutiny as policymakers consider introducing merchant charges for transactions above Rs 2,000, signalling a potential shift in the country’s zero-MDR regime amidst ongoing industry cost concerns.
India’s UPI system, which has become the default way many households pay for everything from tea to groceries, is back under scrutiny after fresh debate over whether merchant payments could one day carry a charge. RBI Governor Sanjay Malhotra tried to calm nerves on 5 August, saying it was too early to decide who would bear any future cost if a merchant discount rate, or MDR, were introduced. For now, there is no new fee for customers, shopkeepers or ordinary UPI transfers.
That distinction matters. According to reports cited by media and officials, the discussion is centred on commercial UPI payments to merchants above Rs 2,000, with a possible MDR of less than 0.5%. Person-to-person transfers would stay outside any such framework. The bigger transactions are a small slice of the number of payments, but they make up most of the value, which is why policymakers are paying attention. Even so, the bill now before Parliament does not mention any specific rate or a Rs 2,000 threshold.
The wider policy change comes from the Taxation and Other Laws (Amendment) Bill, 2026, which Finance Minister Nirmala Sitharaman introduced on 4 August. The proposal would amend section 10A of the Payment and Settlement Systems Act, 2007, giving the central government more power to decide which electronic payment methods remain free and which can carry charges. Until that Bill becomes law and fresh rules are issued, UPI and RuPay debit cards remain under the zero-MDR regime that has applied since January 2020.
The pressure for a workable revenue model has been building for some time. Banks and payment companies have argued that running the network, protecting it against fraud and keeping it technically sound all cost money. A parliamentary standing committee report in March 2026 also said government incentives were not enough to cover industry costs. Against that backdrop, the scale of UPI is striking: in July, the system processed 23.66 billion transactions worth Rs 29.88 lakh crore. For Indian users, the immediate takeaway is simple: nothing changes today, but the long-term economics of digital payments are clearly being reconsidered.
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