The proposed introduction of a Merchant Discount Rate (MDR) on UPI transactions of Rs 2,000 and above could be implemented within the next two weeks, according to a Financial Express report.
The Central
government is expected to initiate the process by issuing a gazette notification through the Department of Financial Services. The notification is likely to specify electronic payment methods that will receive statutory protection from MDR.
Following the notification, a Services Steering Committee headed by the National Payments Corporation of India (NPCI) is expected to determine the framework, scope and rate structure for the proposed levy.
How UPI MDR could work
MDR refers to the fee charged to merchants by banks and payment service providers for processing digital transactions. The proposed change would mark a significant shift from India's existing Zero MDR framework for UPI payments.
The government has maintained that any MDR introduced for qualifying transactions will not be directly passed on to consumers. Finance Minister Nirmala Sitharaman has said that users will continue to be able to make such UPI payments without paying a transaction fee.
A similar assurance was provided during parliamentary discussions on the Taxation and Other Laws (Amendment) Bill, 2026. The legislation amended the Payments and Settlement Systems Act, 2007, allowing MDR to be introduced for digital transactions above a specified threshold.
End of India's Zero MDR era?
India introduced Zero MDR for UPI and other specified digital payments in January 2020 to encourage the adoption of cashless transactions. Before that, digital payments could attract a fee of up to 0.3%, with MDR being charged to merchants and other businesses.
The proposed threshold-based system would therefore represent a partial departure from the current policy rather than a return to universal MDR.
The final structure, including the precise rate and transactions covered, is expected to be determined after the government notification and subsequent deliberations by the NPCI-led committee.
The key issue for merchants will be how the additional payment-processing cost affects their digital transaction economics, while consumers are expected to remain protected from direct charges.
