Will UPI Payments Become Chargeable? Here's What the Proposed MDR Rule Change Actually Means

The Finance Ministry's proposal to amend the Payment and Settlement Systems (PSS) Act, 2007 has sparked questions about whether UPI payments could soon attract charges. However, the proposed amendment does not reintroduce Merchant Discount Rate (MDR) on UPI transactions.

Instead, the proposal seeks to change the legal framework governing digital payment charges by giving the government the flexibility to decide which payment modes remain exempt from MDR through future notifications.

Here's what the proposal means.

Will You Have to Pay for UPI Transactions?

No. The proposed amendment does not impose any charges on UPI transactions.

Users can continue making UPI payments without any transaction fee, and merchants will not be required to pay MDR unless the government issues a separate notification in the future.

At present, the government has not announced any MDR rate, identified the transactions that could attract charges or specified a timeline for implementing such a change.

What is the Government Planning to Change?

The proposal aims to amend Section 10A of the Payment and Settlement Systems Act, 2007.

Currently, the law prohibits banks and payment service providers from levying charges on notified payment modes such as UPI and RuPay debit cards.

If approved, the amendment would allow the government to decide through notifications which digital payment modes remain exempt from MDR and which may attract charges in the future.

Why Is the Amendment Being Proposed?

UPI processed 23.66 billion transactions worth ₹29.88 lakh crore in July 2026. Since MDR was removed in January 2020, the government has supported the ecosystem through an incentive scheme.

According to the Parliamentary Standing Committee on Finance, the ₹2,000 crore allocated for the incentive scheme in 2026-27 covers only a part of the industry's estimated costs. The proposed amendment provides the government with flexibility to review the current framework if required.

Could Only Certain UPI Transactions Attract MDR?

The government has not made any proposal on this.

However, news reports suggest that, if MDR is introduced in the future, it could be limited to higher-value merchant transactions while smaller merchants and low-value payments remain exempt. No official decision has been announced.

Conclusion

The proposed amendment does not change how UPI payments work today. Any decision to introduce MDR would require separate government notifications specifying the applicable payment modes, transactions and rates. Until then, UPI transactions continue to remain free. Users tracking developments in digital payments and fintech companies can also monitor the sector through a demat account.

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