What Exactly Is Being Proposed?
The government has introduced a bill that enables it to allow charges on certain digital payments, a significant shift from the zero-fee policy for UPI in place since 2020. This doesn't mean charges are coming tomorrow, but it creates the legal pathway
for them. The charge being discussed is called a Merchant Discount Rate (MDR), a fee merchants pay to banks and payment processors for handling a digital transaction. Officials have clarified that any potential UPI charges would be carefully targeted. Consumers will not be charged for making payments, and person-to-person transfers will remain free. The focus is on a small subset of merchant transactions, likely those involving larger businesses.
Who Might Actually Be Charged?
The consensus from government and industry bodies is that small merchants, like local kirana stores and street vendors, will continue to accept UPI payments for free. The proposal is aimed at larger merchants with high transaction volumes and turnover. While no final numbers have been announced, one proposal being considered involves an MDR of 0.3% to 0.5% on UPI transactions above ₹2,000, specifically for merchants with an annual turnover exceeding ₹1.5 crore. This threshold-based approach aims to protect small businesses and ensure that the widespread adoption of digital payments is not discouraged.
Why The Sudden Talk About Charges?
Running a massive, real-time payment system like UPI isn't free. Banks, payment aggregators, and the National Payments Corporation of India (NPCI) incur significant costs for technology, infrastructure, fraud prevention, and cybersecurity. Since 2020, these entities have not been able to earn revenue from UPI transactions, relying instead on government incentives which many in the industry argue are insufficient to cover the actual costs. Proponents of MDR argue that a sustainable revenue model is essential for the long-term health and growth of the UPI ecosystem. RBI Governor Sanjay Malhotra has noted that the cost of the system has to be paid by someone, emphasizing the need for continued investment to keep the infrastructure robust and secure.
The Arguments For and Against
The main argument for introducing MDR is financial sustainability. A dedicated revenue stream would encourage private players to continue investing in and innovating on the UPI platform, ensuring its security and reliability as transaction volumes surge. It would create a more balanced framework that doesn't rely solely on government subsidies. Conversely, critics worry that even targeted charges could slow down digital payment adoption. There is concern that large merchants who are charged the fee might pass the cost on to consumers through slightly higher prices for goods and services. This could potentially push some transactions back towards cash, undermining one of the key goals of Digital India.
What Happens Next?
The introduction of the Taxation and Other Laws (Amendment) Bill, 2026, is the first step. It provides the government with the power to make these changes, but does not implement them directly. If the bill is passed by Parliament, the details will be worked out by a steering committee headed by the NPCI. This committee will decide on the specific turnover thresholds, the transaction values that might attract a charge, and the exact MDR rate. For now, UPI remains free for all users and merchants. The government and the Payments Council of India have repeatedly assured the public that the vast majority of transactions, particularly for individuals and small businesses, will remain free.
