Govt mulls charging a fee on high-value UPI transactions; will it affect you?

The Finance Ministry has proposed a legal amendment that could pave the way for charging a Merchant Discount Rate (MDR) on high-value UPI transactions. However, the proposal is unlikely to affect ordinary consumers or small businesses, as the government is considering limiting the charge to large merchants and high-value transactions.

The proposal, tabled by Finance Minister Nirmala Sitharaman as part of the Taxation and Other Laws (Amendment) Bill, 2026, does not immediately impose any fee. Instead, it seeks to create the legal framework that would allow the government to levy MDR on notified digital payment modes in the future if the proposal is passed.

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Merchant Discount Rate (MDR) is a fee that merchants pay to banks and payment service providers for processing digital payment transactions.

What is being proposed?

According to a Reuters report, one option under consideration is to levy an MDR of 0.25 per cent to 0.5 per cent on UPI transactions above Rs 2,000. The charge is expected to apply only to merchants with an annual turnover exceeding Rs 1.5 crore, ensuring that neighbourhood shops and small retailers remain outside its ambit.

Another proposal is to fix a fee based on a merchant's annual turnover rather than the value of individual transactions. Policymakers are also considering placing a cap on the maximum fee that can be charged.

If implemented, the MDR would be paid by merchants to banks and payment service providers for processing large digital payments. Consumers making person-to-person (P2P) transfers or routine UPI payments are not expected to face any charges.

Reason for the proposal

The proposal comes amid growing concerns over the long-term sustainability of India's digital payments ecosystem. Industry stakeholders have repeatedly argued that the zero-fee policy has made it difficult for banks and payment companies to recover the cost of maintaining and expanding UPI infrastructure.

Processing billions of transactions every month requires continuous investments in technology, cybersecurity, fraud detection and network capacity. Payment companies say the absence of transaction-based revenue limits their ability to strengthen these systems and innovate further.

Government committees examining the issue have also noted that maintaining a zero-fee model indefinitely may not be financially viable as transaction volumes continue to grow.

Why high-value transactions?

Officials believe charging MDR only on high-value merchant transactions would minimise the impact on users while generating enough revenue to support the payments ecosystem.

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Although UPI transactions above Rs 2,000 account for only around 4-5 per cent of total transaction volume, they contribute nearly 65-67 per cent of the overall transaction value. This makes them a relatively small segment by volume but a significant one in terms of money processed.

According to a report by brokerage firm Jefferies, introducing MDR on this category could generate Rs 5,000 crore to Rs 10,000 crore annually for the digital payments industry, benefiting companies such as Paytm and Pine Labs.

How is this different from card payments?

Unlike UPI, merchants already pay MDR on credit and debit card transactions. Credit card payments typically attract a fee of around 1.5 per cent, while debit card charges vary depending on the bank and payment network.

UPI has so far remained exempt from such processing fees, making it the preferred payment mode for both merchants and customers.

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The proposal comes at a time when UPI continues to witness record growth. Official data showed the platform processed 23.6 billion transactions worth Rs 29.9 trillion in July, reinforcing its position as one of the world's largest real-time digital payment systems.