The clarification came after concerns emerged that changes proposed through the Taxation and Other Laws (Amendment) Bill, 2026 could result in users being charged for making UPI payments.
However, the Bill does not introduce any MDR on UPI transactions or specify any fee. It only creates a legal framework that allows the government to modify the existing zero-MDR regime through future notifications.
What is MDR?
Merchant Discount Rate (MDR) is a fee paid by merchants to banks, payment service providers and other intermediaries for processing digital transactions.
It is typically deducted from the transaction value received by the merchant. Customers making payments generally do not pay MDR directly.
Who pays MDR?
MDR is paid by the merchant, not the customer making the payment.
The fee is generally shared among different participants involved in processing the transaction, including the acquiring bank, issuing bank, payment networks and payment service providers, depending on the payment method and arrangement.
What has the government clarified?
Sitharaman said MDR, if introduced, would be applicable to merchants and not end users.
She said the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), will examine the issue only after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.
This means there is no change for UPI users, and the existing zero-cost UPI payment experience continues.
Why is MDR being discussed now?
Banks and payment service providers have raised concerns about the costs involved in maintaining digital payment infrastructure, including technology upgrades, cybersecurity and transaction processing systems.
Experts said the proposed amendment provides flexibility to revisit the current framework, but does not automatically mean MDR will be introduced.
Sandeep Bhalla, Partner, Dhruva Advisors, said the amendment is an enabling provision and does not by itself introduce MDR on UPI transactions.
“The amendment removes the existing statutory restriction and provides the government with flexibility to determine through future notifications whether charges should apply to specified digital payment modes,” he said.
Could MDR impact all UPI transactions?
Experts expect any future framework, if introduced, to be calibrated rather than a blanket charge across all transactions.
Raghav Muthanna, Partner, CMS INDUSLAW, said MDR is unlikely to be applied to person-to-person (P2P) transactions or lower-value merchant transactions.
He said the removal of the zero-MDR restriction could provide more flexibility to payment service providers and banks to build sustainable revenue models around UPI.
What does this mean for UPI users?
For consumers, there is currently no proposal to charge a fee for making UPI payments.
Any future change would require further policy decisions, including details on which transactions could be covered, who would bear the cost and whether exemptions would apply.
For now, UPI users can continue making payments without paying MDR.
