The government has clarified that UPI users will not be charged for making digital payments, amid growing speculation over the possible introduction of a Merchant Discount Rate (MDR). Any MDR, if implemented, will apply only to select merchant transactions above a specified threshold.
The clarification follows the Lok Sabha's passage of the Taxation and Other Laws (Amendment) Bill, 2026, which removes the legal restriction on levying MDR on certain electronic payment transactions. The amendment does not impose an MDR on UPI payments but enables the government to introduce such a framework in the future, if required.
Also Read: Govt's Big Clarification On UPI Charges, Payments To Remain Free For Consumers
UPI Charges: Will Customers Have To Pay?
For consumers, the answer is no. Person-to-person, or P2P, UPI transactions will remain free, the Finance Ministry said. Customers making payments through UPI will not be charged a transaction fee under the proposed framework.
The government also said the vast majority of merchant transactions will remain free. If MDR is introduced, it will apply only to a limited set of merchant transactions above a certain threshold and at a nominal rate, significantly lower than the MDR typically charged on debit and credit card payments.
This means a routine UPI payment at a small shop, tea stall or neighbourhood store is not expected to suddenly attract a charge.
Who Could Pay MDR On UPI?
Any MDR, if introduced, would apply to eligible merchants rather than consumers. Earlier reports suggested the levy could be imposed on higher-value merchant transactions, possibly above Rs 2,000, although the government has not announced any threshold or rate. Reuters had reported that one proposal being discussed was an MDR of 0.3%-0.5% on such transactions for large merchants.
The government said the final decision on MDR, if any, will be taken by the UPI and Services Steering Committee headed by NPCI after Parliament passes the amendment to Section 10A of the Payment and Settlement Systems Act, 2007.
Also Read: MDR May Be Back For UPI: Who Will Pay, How It Works & What's Next
Why Is MDR Being Considered Now?
UPI processed a record 2,366 crore transactions worth Rs 29.9 lakh crore in July 2026, showcasing the scale at which the platform now operates, government data showed.
The government has argued that a sustainable revenue model is needed to support the continued expansion, security and technological development of the UPI ecosystem, particularly as digital payments expand into rural and semi-urban markets.
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