The central government is considering allowing banks and payment service providers to levy a Merchant Discount Rate (MDR) of 0.25% to 0.4% on UPI payments exceeding ₹2,000 made to businesses. Person-to-person (P2P) UPI transfers are expected to remain exempt.
The proposal follows the introduction of the Taxation and Other Laws (Amendment) Bill by Finance Minister Nirmala Sitharaman, which seeks to remove the existing restriction preventing banks and payment service providers from charging MDR on notified digital payment modes. Government officials have clarified that no decision has yet been made regarding the implementation timeline.
According to official estimates, the proposed ₹2,000 threshold would affect only 5% of all UPI transactions by volume. However, these transactions account for nearly 65% of the total value processed through UPI. As a result, routine purchases such as groceries, milk, vegetables, and payments for auto-rickshaws or taxis are unlikely to be impacted.
In July, UPI processed 23.7 billion transactions worth approximately ₹29.9 lakh crore, underscoring its dominant role in India’s digital payments ecosystem.
Officials have emphasized that even if the proposal is implemented, 95% of UPI transactions would remain free of MDR. They also noted that businesses may choose not to pass the charges on to customers, given that the proposed fee would be relatively small.
Industry representatives have suggested that the government may also introduce a cap on the maximum amount chargeable as MDR. They argue that, unlike credit card transactions, UPI payments do not involve lending or funding costs, making a ceiling on charges reasonable once operational expenses are recovered.
Currently, both credit and debit card transactions attract MDR, although most merchants absorb these costs instead of passing them on to consumers. Credit card MDR, which is not regulated, can reach up to 3% of the transaction value. For debit cards, MDR is capped at 0.4% for merchants with annual turnover up to ₹20 lakh, and 0.9% for higher-value merchants.
