India’s move from a zero-MDR regime towards allowing merchants to be charged for some UPI and RuPay transactions signals a significant shift in the country’s digital payments landscape, with industry urging new fee structures.
India’s debate over whether merchants should pay to accept some UPI and RuPay debit card transactions is moving from policy theory towards possible law. According to The Indian Express, the Taxation and Other Laws (Amendment) Bill, 2026 would allow banks and payment system providers to levy a fee on merchants in certain cases, a shift that would mark a major break from the zero-MDR regime that has underpinned the country’s digital payments push.
The issue centres on the merchant discount rate, or MDR, the fee paid by merchants when customers use digital payment rails. India has kept MDR at zero for most peer-to-merchant UPI payments and for RuPay debit card transactions, but industry groups have long argued that the model is financially strained, especially for larger merchants and payment firms handling high volumes. Research by Terra Insight says the Parliamentary Standing Committee on Finance and the Payments Council of India have both discussed a tiered MDR structure for big merchants, reflecting growing pressure to revisit the current system.
Budget signals have also been mixed. Business Standard reported that the Union Budget for 2026-27 set aside ₹2,000 crore to support low-value UPI and RuPay debit card payments, yet the MDR itself remained at zero. That followed a much smaller incentive allocation in the 2025-26 budget, which Business Standard said was cut sharply from the previous year. The payments industry has since continued to press the finance ministry for a formal change, arguing that the existing subsidy-based model does not fully address transaction costs.
There are already signs that some RuPay-linked UPI transactions are being carved out from the broader zero-fee structure. According to Canara Bank, MDR will apply from June 1, 2026, on RuPay credit card payments made through UPI above ₹2,000, with the rate varying by merchant category and business line. Separately, NPCI has already trimmed fees on RuPay credit card transactions on UPI from April 1, 2026, according to MediaNama and Angel One, in a move that should reduce costs for fintechs such as Paytm, PhonePe and MobiKwik while leaving merchant-acquiring revenue largely unchanged.
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