Govt moves Bill to levy MDR on UPI, digital payments on big merchants; no fee for consumers

UPI today processes nearly 23 billion interoperable payment transactions each month.
| Photo Credit:
ALLEN EGENUSE J

Any electronic payment method not included in the negative list released by the Finance Ministry will attract Merchant Discount Rate (MDR), and UPI could be subject to that, according to sources. The list will be published once the Taxation and Other Laws (Amendment) Bill (ToLA) is enacted.

Key Takeaways

• The government introduced the Taxation and Other Laws (Amendment) Bill to potentially allow MDR on UPI and digital payments for large merchants.
• Consumers will face no charges, with any MDR affecting only certain electronic payment methods not on a forthcoming negative list.
• UPI currently processes nearly 23 billion interoperable transactions monthly.
• The bill amends the Payment and Settlement Systems Act, 2007 to remove references to prior Income-tax Act provisions.

Finance Minister Nirmala Sitharaman introduced the ToLA Bill in the Lok Sabha on Tuesday. Apart from other provisions, the Bill aims to amend the Payment and Settlement Systems Act, 2007. The amendment removes the reference to the Income‑tax Act provision and states that “no bank or system provider shall impose, whether directly or indirectly, any charge on a person making or receiving a payment using one or more electronic modes of payment as may be notified by the Central Government.” 

In effect, the Bill will allow the government to decide which instruments, which categories of payers, what thresholds, etc., are exempt from charges. Sources say nothing has been finalised yet, but they agree that the enabling provision will pave the way for MDR. MDR is the fee merchants pay to banks and payment service providers for processing digital transactions. While credit cards in India typically attract an MDR of about 1.5 % and debit cards up to 0.9 %, UPI transactions are currently free for merchants.

Two options

According to reports, the government is weighing two approaches to monetise UPI: either cap the number of free transactions and apply MDR beyond that limit, or levy a fee based on a merchant’s annual turnover. Sources declined to confirm or deny the proposals.

UPI today processes nearly 23 billion interoperable payment transactions each month. Looking at the near‑zero investment scenario over the last six years, the pace of growth is naturally slowing, although there remains an opportunity to increase penetration by almost threefold across both consumers and merchants.

“For us to reach 90 % penetration and take UPI global, startups, fintechs, and banks will need to fund this expansion through continued investment in IT, innovation, and cybersecurity. These costs have risen by almost 300 % over the last 12–24 months. While some recovery of these investments is expected, peer‑to‑peer (P2P) transactions — and any charges to consumers — should continue to remain zero,” said Amrish Rau, CEO Pine Labs, in a social media post.

Published on August 4, 2026