The Indian government is exploring a tiered merchant discount rate on high-value UPI payments to address the financial sustainability of the rapidly growing payments network, with small businesses and consumers expected to be protected from fees.
India’s government is weighing a limited merchant fee on some high-value Unified Payments Interface transactions as policymakers search for a way to keep the fast-growing payments network financially viable, according to a parliamentary panel and finance ministry briefings.
The Parliamentary Standing Committee on Finance warned that the present model for UPI is not financially sustainable and may weaken spending on cybersecurity, fraud prevention and network infrastructure as transaction volumes keep rising. The committee cited an annual support package of ₹2,000 crore against estimated operating costs of ₹20,700 crore, saying the gap leaves the ecosystem heavily reliant on public subsidy.
Officials told the panel they are considering two broad options: reinstating the merchant discount rate, or MDR, for certain high-value payments or large merchants, and moving to a tiered incentive system that would gradually reduce government support. In practice, any charge would be aimed at selected merchant transactions above a threshold and would remain below the cost usually associated with card payments.
According to reporting by Economic Times and Mint, the threshold under discussion could be around ₹2,000, with the rate kept below 0.5%. The reports said small businesses and consumers are expected to be protected, with the possible levy focused on larger merchants that handle substantial payment volumes. The government has not yet implemented any new UPI charge.
The policy debate has gathered pace after the latest budget trimmed the incentive allocation for UPI and RuPay transactions to ₹2,000 crore for FY27 from ₹2,196 crore in FY26, LiveMint reported. The committee also noted that recent legislative changes have now created a statutory basis for calibrated charges on selected electronic payments, although no notification has been issued. The UPI and Services Steering Committee, headed by the National Payments Corporation of India, is expected to decide the structure and threshold if the government moves ahead.
Finance Minister Nirmala Sitharaman has previously said consumers would continue to use UPI without transaction fees, underscoring that any new MDR would be limited and selective. For the committee, the central concern is whether the country can preserve UPI’s scale while building a revenue stream that does not leave the system dependent on shrinking public support.
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