The Payments Council of India (PCI) has welcomed the government’s move to allow merchant discount rates (MDR) on Unified Payments Interface (UPI) transactions for larger businesses, while assuring that consumers and small merchants will remain exempt.
The Lok Sabha recently passed the Taxation and Other Laws (Amendment) Bill, 2026, removing the legal bar on banks and payment service providers levying MDR on certain digital payment modes. The amendment itself does not impose charges but empowers the Centre to specify payment categories where MDR may apply.
Finance Minister Nirmala Sitharaman clarified in Parliament that any MDR would be levied only on merchants, not customers. She emphasised that peer‑to‑peer transfers and payments to small shops will continue to be free. The National Payments Corporation of India (NPCI) and its Services Steering Committee will decide the modalities once the Bill is enacted.
Industry players argue that the zero‑MDR regime, in place since January 2020, has strained banks and fintech firms. With UPI processing 23.6 billion transactions worth ₹29.9 lakh crore in July 2026, they contend that revenue from MDR is essential to sustain infrastructure, cybersecurity, and customer support.
Reports suggest a graded fee structure could be introduced, with MDR set at 5–7 basis points for businesses with turnover above ₹1–1.5 crore. This would create direct fee income for leading UPI platforms such as PhonePe, Google Pay, and Paytm, which dominate transaction volumes.
A parliamentary committee had earlier recommended MDR for larger merchants, coupled with incentives for low‑value UPI payments in smaller towns and cities. PCI echoed this view, stating that merchant charges would help strengthen the ecosystem without burdening everyday users.
In essence, the government’s amendment paves the way for a balanced approach: ensuring UPI remains free for consumers and small businesses, while allowing banks and payment providers to recover costs from larger merchants. The final decision now rests with NPCI and the Centre, marking a significant moment in India’s digital payments journey.
