Free usage of UPI services in the country may soon come to an end. The Reserve Bank of India has begun preparations to bring about key changes to UPI services. RBI Governor Sanjay Malhotra made significant remarks in this regard, making clear that if digital payments are to be sustained, someone must bear the cost involved. While the Centre is currently promoting UPI services through subsidies, it is now looking to levy charges on these digital services in the future. Malhotra noted that digital payments involve substantial expenditure on server costs and cybersecurity. In line with this, the central government has proposed amendments to the Payment and Settlement Systems Act in Parliament. Through this proposed legislative change, introduced by Union Finance Minister Nirmala Sitharaman, the government is considering implementing a Merchant Discount Rate (MDR) on UPI transactions as well.
MDR Likely Only on Transactions Above ₹2,000
According to proposals currently under consideration by the central government, MDR may be levied on business UPI transactions exceeding ₹2,000. This means an MDR ranging from 0.3 percent to 0.5 percent could be imposed per transaction, translating to a charge of approximately ₹6 to ₹10 per transaction. At the same time, it is learnt that no charges will apply to person-to-person UPI transactions.
The proposal has also been designed so that this burden does not fall on ordinary users, applying only to large merchants with an annual turnover exceeding ₹1.5 crore. The government has made clear that this will not impose any additional burden on general consumers, street vendors, or small shopkeepers. Officials are also reportedly examining the possibility of determining charges based on annual turnover. With the Centre having already introduced a bill in the Lok Sabha to enable the collection of MDR, its implementation is expected to affect crores of business UPI transactions once it comes into force.
What Exactly Is MDR?
MDR generally refers to the amount merchants pay to banks or payment service providers in exchange for using digital payment services. Merchants currently pay processing charges of up to 1.5 percent on credit card transactions, while debit card transactions also attract some fee. However, UPI has so far remained free of any such charges — a factor that has been central to its widespread adoption among both merchants and consumers. With discussions on levying charges on UPI now underway, this development may come as a disappointment to UPI users.