"Government Moves to Allow Charges on UPI Transactions via Legislative Amendment"
Merchant Discount Rate (MDR)
fee charged to a merchant's bank for processing a digital payment, shared among acquiring bank, issuing bank, and card network
Zero-MDR policy
government mandate making UPI and RuPay debit card transactions free for merchants, in force since 2020
India's digital payments ecosystem is built on the Unified Payments Interface (UPI), launched in 2016 by the National Payments Corporation of India (NPCI) — a not-for-profit entity promoted by the Reserve Bank of India (RBI) and a consortium of banks. UPI operates as an interoperable, real-time payment rail enabling fund transfers across bank accounts without cards or point-of-sale terminals. Its mass adoption was catalysed by the demonetisation episode, the COVID-19 pandemic's push toward contactless transactions, and — most critically — its zero Merchant Discount Rate (MDR) structure, under which merchants pay no fee for accepting UPI payments.
The Payment and Settlement Systems Act, 2007 provides the overarching statutory framework for payment systems in India. Before the recent legislative change, Section 10A of that Act expressly exempted UPI and RuPay debit card transactions from any charges. RuPay, also operated by NPCI, is India's domestic card network and a direct competitor to the Visa and Mastercard duopoly. Government policy has actively promoted RuPay through Jan Dhan accounts and preferential treatment in public procurement, delivering significant financial inclusion dividends while simultaneously displacing fee revenue that foreign card networks would otherwise have earned.
The Merchant Discount Rate (MDR) is the fee a merchant's bank charges for processing a digital payment transaction, typically shared among the acquiring bank, the issuing bank, and the card network. For credit cards and non-RuPay debit cards, MDR ranges from roughly 0.4% to 2% of transaction value. UPI was made free in 2020, and since then, payment processors and banks have argued they bear the full cost of maintaining the UPI infrastructure without a corresponding revenue stream.
The proposed change flows from the Taxation and Other Laws (Amendment) Bill, 2026, passed in the Lok Sabha without debate. This Bill amends Section 10A of the Payment and Settlement Systems Act, 2007 to allow the government to notify which categories of transactions may attract a charge — effectively removing the blanket statutory exemption that previously shielded UPI and RuPay debit card transactions from any levy. Crucially, the amendment does not itself impose a charge; it grants the executive the power to do so by notification, widening the government's discretionary authority over the payment ecosystem.
Government sources indicate the charge, if notified, would initially apply only to transactions by large merchants with turnovers above ₹1 crore–₹1.5 crore and for transaction values above ₹2,000 — estimated to cover only about 5% of all UPI transactions. However, the amended law's scope is broader than this initial intent, and critics note that the notification route allows future expansion without fresh parliamentary approval. …
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
With reference to digital payments, consider the following statements :
1.BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2.While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/are correct?
With reference to the Taxation and Other Laws (Amendment) Bill, 2026, consider the following statements:
1.It amends Section 10A of the Payment and Settlement Systems Act, 2007.
2.It directly imposes a Merchant Discount Rate (MDR) on all UPI transactions immediately upon passage.
3.It grants the government the power to notify which categories of transactions may attract a charge.
Which of the statements given above is/are correct?
Which of the following best describes the government's subsidy scheme for UPI transactions introduced in 2021?
Assertion (A): The USTR has classified India's zero-MDR policy on UPI as a foreign trade barrier.
Reason (R): India's zero-MDR policy reduces revenue opportunities for foreign card networks such as Visa and Mastercard, which compete with NPCI's RuPay in the Indian market.
Which of the following is correct?
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