Key Details
What will remain free
Consumers making UPI payments will not face transaction charges.
All person-to-person transactions will remain free.
The vast majority of merchant transactions are also expected to remain free.
What may change
A Merchant Discount Rate (MDR) may be introduced later for a limited category of merchant transactions above a specified threshold.
Any such MDR would be nominal and lower than the rates applicable to debit and credit cards.
It would not be imposed automatically or uniformly on every UPI merchant payment.
The UPI and Services Steering Committee, headed by NPCI, will decide whether an MDR should be introduced and how it should operate.
The Amendment Creates Flexibility; It Does Not Impose a Charge
The clarification follows approval of the Taxation and Other Laws (Amendment) Bill, 2026 on 6 August. The amendment to Section 10A of the Payment and Settlement Systems Act, 2007 has generated concern that ordinary UPI transactions could become chargeable.
The Government has now distinguished between two issues:
UPI will continue to be free for people making payments.
The amended framework permits consideration of a future MDR for a limited set of merchant transactions.
An MDR is generally paid by a merchant for accepting a digital payment; it is different from a direct transaction fee charged to the customer. The amendment itself neither fixes a rate nor identifies the merchants or transactions that could eventually be covered.
The Change Seeks a New Funding Model for UPI
The Government argues that UPI’s rising transaction volumes require continuing expenditure on:
payment infrastructure;
cybersecurity and fraud prevention;
technological upgrades;
operational resilience; and
expansion into rural and semi-urban markets.
It considers exclusive reliance on government subsidies insufficient for the system’s next phase. The possible merchant charge is therefore being presented as a way to support the payment ecosystem without charging ordinary users.
In July 2026 alone, UPI processed 2,366 crore transactions worth ₹29.9 lakh crore, according to the Ministry of Finance.
What Is MDR?
The Merchant Discount Rate is a fee associated with accepting a digital payment. It is normally charged to the merchant and distributed among entities providing payment-processing infrastructure and services. Its economic effect may nevertheless depend on whether merchants absorb the cost or reflect it in prices.
Policy Relevance
The clarification separates free consumer access from the question of how payment infrastructure should be financed.
A threshold-based MDR could shift part of UPI’s cost from public subsidy to larger commercial users while exempting smaller merchants.
The eventual threshold, rate and exemptions will determine whether the measure raises sustainable revenue without discouraging digital acceptance.
Moving these decisions to the implementation stage creates flexibility but also makes transparency around the NPCI-led committee’s criteria important.
UPI’s funding model is becoming a broader infrastructure-policy question as transaction volumes, cybersecurity requirements and system complexity increase.
Relevant Question for Policy Stakeholders: How should a future merchant threshold be designed so that UPI infrastructure receives sustainable funding without weakening adoption among small businesses?
Follow the Full Clarification Here: No Charges for UPI Users
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