Govt may allow MDR on UPI payments above ₹2,000; person-to-person transfers likely to stay free

The government is evaluating the possibility of bringing back the Merchant Discount Rate (MDR) for certain high‑value UPI merchant payments, with a suggested cut‑off of ₹2,000. Meanwhile, peer‑to‑peer UPI transactions would likely stay free of charge, as indicated by sources within the administration.

This idea comes after the Payment and Settlement Systems (Amendment) Bill was tabled in Parliament, establishing the legal basis for the government to levy MDR on specific digital payment methods such as UPI and RuPay. The bill does not itself charge a fee; it merely gives the authority to impose one later via government notifications and RBI directions.

Authorities are reportedly looking at an MDR ranging from 0.25 % to 0.4 % for qualifying merchant transactions, though a definitive rate and rollout schedule have not yet been settled. Talks also centre on applying the charge mainly to larger merchants, while keeping small enterprises and routine consumer payments exempt.

According to government officials, payments exceeding ₹2,000 constitute roughly 5 % of the total UPI transaction count but contribute about 65 % of the overall transaction value, presenting a viable revenue stream for banks and payment processors. Everyday purchases like groceries, vegetables, milk and local transport would likely remain unaffected should the measure be adopted.

This represents a notable departure from the zero‑MDR policy launched in 2020, which spurred rapid UPI uptake nationwide. Since that time, UPI has risen to become India’s leading digital payment system, handling 23.7 billion transactions amounting to ₹29.9 lakh crore in the month of July alone.

Officials stress that no MDR has been sanctioned at present, and any eventual framework would need a government notification, any required legislative support, and comprehensive operational directives from the Reserve Bank of India before it could take effect.