India’s parliamentary finance committee has recommended implementing a tiered merchant discount rate for large digital transactions, challenging the longstanding zero-charge model of the UPI system amid mounting infrastructure costs and policy debates.
India’s parliamentary finance committee has urged the government to move quickly to a tiered merchant fee on larger digital payments, arguing that the present zero-charge model for Unified Payments Interface transactions is becoming too costly for the state to sustain. The Standing Committee on Finance, chaired by Bhartruhari Mahtab, said the system needs a more durable revenue structure to support banks, payment firms and the wider infrastructure behind the country’s fast-growing digital payments network, PTI reported.
The committee said the gap between government support and the real cost of running the ecosystem has widened sharply. It pointed to a central allocation of Rs 2,000 crore to offset zero-MDR transactions, against an estimated industry operating cost of about Rs 20,700 crore. In its report, the panel argued that a calibrated merchant discount rate, or MDR, should be applied to higher-value merchant transactions while keeping small merchants and person-to-person transfers protected.
The recommendation comes after Parliament passed amendments to the Payment and Settlement Systems Act, 2007, removing the legal barrier that had prevented banks and payment providers from charging fees on notified electronic payment modes. According to reports in Livemint and Moneycontrol, officials are weighing a low MDR, possibly below 0.5%, for large merchants and for transactions above Rs 2,000, although no final rates or thresholds have been announced. The Finance Ministry has separately said there is no proposal to charge consumers for using UPI.
The committee warned that continued reliance on subsidies could weaken investment in cybersecurity, fraud prevention and network upgrades. It also said any delay in notifying the new framework could leave the industry dependent on government support that falls far short of the system’s actual costs. A report in ClearingPost said the ministry has not accepted the committee’s view and remains committed to keeping UPI free for users, underscoring the policy debate now surrounding the long-term financing of India’s payments rails.
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