New Delhi: The Centre has taken the first legislative step that could eventually allow Merchant Discount Rate (MDR) to be imposed on select Unified Payments Interface (UPI) transactions, although officials have clarified that no final decision has been made on introducing the charge.
The proposal comes through amendments to the Payment and Settlement Systems Act, introduced in Parliament by Finance Minister Nirmala Sitharaman on Tuesday. The changes are intended to create the legal framework required if the government decides to levy MDR on digital payments in the future.
Government sources indicated that discussions are still underway, with authorities yet to determine whether the fee will be implemented, what the applicable rate would be, or which categories of merchants would fall within its scope.
Officials are reportedly evaluating multiple models. One option is to impose MDR only on UPI payments exceeding a specified transaction value, while another links the charge to the annual turnover of merchants. A proposal under consideration suggests applying a fee of 0.3% to 0.5% on transactions above Rs 2,000 for businesses with annual revenue exceeding Rs 1.5 crore. Consumers and smaller merchants are expected to remain exempt if such a framework is adopted.
The move comes amid growing demands from the digital payments industry, which has long maintained that the absence of MDR on UPI transactions limits revenue generation and makes it challenging to fund technology upgrades and expand payment infrastructure.
UPI continues to dominate India’s digital payments ecosystem. Official figures show the platform processed 23.6 billion transactions worth nearly Rs 29.9 trillion in July alone, with PhonePe and Google Pay accounting for a significant share of the market.
A recent analysis by brokerage firm Jefferies highlighted that while transactions above Rs 2,000 make up only around 4% of merchant payment volumes, they contribute nearly two-thirds of the total transaction value. The report estimated that introducing MDR on such high-value payments could generate annual revenues ranging between Rs 5,000 crore and Rs 10,000 crore for the digital payments industry, potentially benefiting companies operating in the sector.
For now, the proposal remains at the discussion stage. The Finance Ministry, the Reserve Bank of India and the National Payments Corporation of India have not issued any official statement on the possible introduction of MDR, leaving the future of the proposal open as consultations continue.
