Parliament has cleared an amendment allowing the Centre to reshape the zero-MDR framework for UPI and other notified digital payments. No new UPI charge has taken effect yet, while the government says customers will not directly bear MDR charges.
India has moved closer to potentially introducing Merchant Discount Rate charges on some UPI merchant transactions after Parliament cleared changes to the law governing digital payment charges.
The Taxation and Other Laws (Amendment) Bill, 2026, changes Section 10A of the Payment and Settlement Systems Act, 2007, which had provided the statutory foundation for the zero-MDR regime covering prescribed electronic payment methods such as UPI and RuPay debit cards.
However, the amendment does not mean UPI users will immediately begin paying transaction charges. The legislation primarily gives the Centre greater flexibility to determine through notifications which electronic payment modes or categories of transactions should remain exempt from charges.
UPI Charges Amendment Changes Zero-MDR Framework
Under the earlier framework, banks and payment system providers were prohibited from directly or indirectly imposing charges on people making or receiving payments through electronic modes prescribed under the Income-tax framework.
The amendment replaces that mechanism with provisions allowing the Central government to specify eligible electronic payment modes through notification.
This effectively creates a legal pathway for the government to modify the existing zero-MDR system in the future. Finance Minister Nirmala Sitharaman has clarified that MDR is a merchant-side charge and not a fee directly imposed on customers or UPI end-users. She also indicated that the final MDR structure has not yet been decided.
UPI Merchant Payments Could Face MDR
Industry discussions have largely focused on whether MDR should return for higher-value merchant transactions rather than everyday person-to-person payments. Reports have suggested that a small MDR could eventually be considered for UPI payments made to businesses above a specified transaction threshold. However, no final rate, threshold or implementation date has officially been announced.
Peer-to-peer transfers, such as sending money to friends or family members, are expected to remain outside any proposed merchant MDR structure. This distinction is important because MDR is traditionally paid by a merchant to banks, payment providers and other participants that process a transaction. It is different from a direct UPI transaction fee charged to an individual consumer.
UPI Payments Need Sustainable Infrastructure: RBI
The debate over UPI charges has gained momentum as transaction volumes continue to rise rapidly and banks and fintech companies seek a sustainable model for maintaining digital payment infrastructure.
RBI Governor Sanjay Malhotra said payment infrastructure requires continued investment and that the cost ultimately has to be funded in some form. He said the options include supporting the ecosystem through public funds or adopting a user-pays model through mechanisms such as MDR.
UPI has become one of India's most important payment systems. In July 2026 alone, the platform processed around 23.66 billion transactions worth approximately ₹29.88 lakh crore, highlighting the enormous scale of the infrastructure required to keep the network operating securely and efficiently.
UPI Customers Will Not Pay New Fee Yet
For ordinary UPI users, the most important point is that no new general transaction fee has come into force simply because Parliament approved the amendment. The next major development will be the formulation of the MDR framework and any subsequent government notification specifying which payments, merchants or transaction categories could be covered.
Small-value purchases and person-to-person transfers could continue to enjoy zero or minimal charges even if MDR is eventually introduced for selected merchant payments.
Until the government and the UPI Services Steering Committee announce the final framework, UPI users should not treat reports of an immediate universal UPI charge as confirmed. The amendment therefore marks a significant change in India's digital payments policy, but the exact impact on merchants, banks and consumers will depend on the rules and notifications that follow.
