UPI MDR debate: Consumers, small merchants to stay exempt, says payments council

The Payments Council of India (PCI) has sought to clear the air around the ongoing debate over merchant discount rate (MDR) on Unified Payments Interface (UPI), saying consumers and small merchants will continue to use the digital payments platform without transaction charges.

The clarification comes after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 6. The legislation removes the legal restriction that had prevented banks and payment system providers from imposing charges on certain notified electronic payment modes, potentially paving the way for MDR on UPI. However, the amendment itself does not introduce a specific MDR rate or impose charges on UPI transactions.

Consumers, kirana stores to remain protected

Addressing concerns that UPI could become a paid service, PCI said consumers would not have to pay for using the platform.

“UPI has always been free for consumers since its launch in 2016. Every Indian can continue making instant digital payments without paying any transaction charges,” the industry body said in its FAQ.

PCI also ruled out charges for small merchants, including neighbourhood kirana stores.

“Small merchants are not required to pay any charges (MDR) to accept UPI payments,” it said, adding that protecting small businesses remains central to UPI's inclusive growth.

Finance Minister Nirmala Sitharaman has also said MDR applies to merchants and not customers. She clarified that the NPCI-led UPI and Services Steering Committee is yet to decide on the MDR framework, and that the decision would come after Parliament clears the legislation.

Focus shifts to UPI's sustainability

According to PCI, the debate is not about making UPI a paid service but about creating a sustainable financial model for the infrastructure supporting the country's rapidly expanding digital payments ecosystem.

“Operating a national payment infrastructure involves continuous investment in technology, fraud prevention, cybersecurity, compliance, customer support and innovation,” PCI said.

These costs are currently borne by banks, payment companies, fintech firms and other ecosystem participants. The government has also supported the zero-MDR model through incentive schemes. Between FY2021-22 and FY2024-25, the Centre provided around ₹8,730 crore in incentives to support the UPI ecosystem.

UPI processed 23.6 billion transactions worth ₹29.9 lakh crore in July, according to NPCI data, stressing the scale of the infrastructure now being operated at zero MDR.

No MDR rate announced yet

PCI said any merchant service charge applicable to large businesses would be a commercial arrangement between merchants and payment service providers and would not amount to a charge on consumers.

“Merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not mean that consumers pay to use digital payments,” it said.

While reports have suggested a possible MDR of 5-7 basis points for larger merchants, with smaller merchants and peer-to-peer transactions remaining exempt, these are still proposals and no final rate or threshold has been notified.

The debate, therefore, has shifted from whether UPI will become paid for consumers to a larger question: who should bear the cost of maintaining and scaling India's digital payments infrastructure as transaction volumes continue to surge?