India Proposes Reintroduction of Merchant Fees on UPI Transactions
India Proposes Reintroduction of Merchant Fees on UPI Transactions
IN · Published Aug 5, 2026
India is moving closer to reintroducing merchant fees on Unified Payments Interface (UPI) transactions. Finance Minister Nirmala Sitharaman has tabled an amendment to the Payment and Settlement Systems Act in Parliament, which would allow the imposition of a Merchant Discount Rate (MDR) on digital payments. UPI, one of the largest real-time payment systems globally, processed 23.6 billion transactions worth ₹29.9 trillion ($313.5 billion) in July
Currently, UPI transactions are free for merchants, but the proposed changes aim to create a legal framework for charging MDR. Industry executives argue that the absence of fees has hindered investment in the digital payments ecosystem. The government is considering two approaches: charging MDR on transactions above a certain threshold or linking fees to a merchant's annual turnover.

Impact & Risks

The reintroduction of MDR could significantly impact merchants, especially large businesses, as they may bear additional costs for UPI transactions. While small businesses and consumers are expected to remain exempt, the move could alter the dynamics of digital payments in India. Payment service providers like Paytm and Google Pay may benefit from the potential revenue generated, estimated to be between ₹50 billion and ₹100 billion annually. However, there is a risk that merchants might pass on these costs to consumers, potentially discouraging the use of UPI for high-value transactions.

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