UPI to stay free for users, nominal MDR may apply to select merchants: Finance Ministry

The government on Saturday clarified that consumers will not have to pay any charges for using the unified payments interface (UPI), while a nominal merchant discount rate (MDR), if introduced, would apply only to a limited set of merchant transactions above a specified threshold.

In a statement issued by the Ministry of Finance, the government said “consumers making payments will not face any transaction charges” and that all person-to-person (P2P) transactions will continue to remain free.

The clarification comes amid growing debate over the recent amendment to the Payment and Settlement Systems Act, 2007, which enables a framework for potential charges on certain digital payment transactions.

MDR to be threshold-based

The government said any MDR introduced in the future would not be a blanket charge across UPI transactions.

“As and when MDR charges are introduced, they will apply only to a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs,” the Finance Ministry said.

It added that the vast majority of merchant transactions would continue to remain free, with any future MDR being threshold-based rather than universally applicable.

Importantly, no MDR rate or transaction threshold has been announced yet. According to the government, once Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, the UPI and Services Steering Committee headed by NPCI will decide on the MDR, if any.

Government pitches sustainability

The Finance Ministry said the amendment should not be viewed as a move to impose charges on ordinary UPI users, but as an enabling provision aimed at ensuring the long-term sustainability of the payments ecosystem.

With UPI transaction volumes rising rapidly, the system requires continued investment in cybersecurity, fraud prevention and infrastructure, the government said.

It also argued that relying solely on subsidies would not be sustainable for the next phase of UPI's expansion and that a self-sustaining revenue model was needed to encourage greater competition and investment in the ecosystem.

The government also rejected reports suggesting that external pressure had influenced the policy change, calling such claims “unfounded, completely false and misleading.”

UPI crosses ₹29.9 lakh crore in July

The clarification comes as UPI continues to operate at unprecedented scale. The government said the platform processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone.

UPI is currently live in 11 foreign countries, with several others expressing interest in adopting the system.

The government reiterated that UPI will remain free for citizens, while any future merchant charges would be limited and nominal.