Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, a move that could open the door to imposing a Merchant Discount Rate (MDR) on UPI transactions on August 6.
MDR is a fee that businesses pay to banks and payment service providers for processing digital transactions. The proposal does not involve charging consumers for using UPI.
The bill seeks to revise Section 10A of the Payment and Settlement Systems Act, 2007, by eliminating the clause that prohibits banks and system providers from charging fees on government notified digital payments.
This pertains to UPI and RuPay debit card transactions, which have been subject to a zero-MDR policy since 2020 under a government initiative aimed at boosting digital payment usage across the country.
According to media reports government is likely to impose MDR in the range of 0.25 percent to 0.30 percent on high-value transactions for large merchants.
Currently, nearly 88 percent of all digital payments in the country are conducted through UPI, which handles more than 23 billion transactions totaling almost Rs 30 lakh crore each month.
In a report dated March 12, 2026, the Standing Committee on Finance noted that zero MDR was introduced to ensure digital payments remained affordable and widely accessible.
However, it warned that removing MDR has made the UPI ecosystem financially unsustainable.
The committee noted that UPI could expand tenfold over the next few years, supported by India’s demographic advantages, economic growth, and extensive reach across the country.
It projected that the platform may gain another 600 million users and process between 100 and 150 billion transactions each month in the coming period.
The central government has not disbursed the UPI subsidy for the last financial year. Payment companies have been claiming that for the next phase of growth, they would require a revenue model to invest in growing UPI.
