GUWAHATI: The Indian government is considering allowing banks and payment service providers to charge a Merchant Discount Rate (MDR) ranging between 0.25% and 0.4% on Unified Payments Interface (UPI) merchant transactions above ₹2,000. In contrast, person-to-person (P2P) transfers will remain entirely free.
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The legal foundation for this shift comes as Union Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill in Parliament. The bill seeks to amend existing payment acts to remove the statutory bar preventing payment platforms from levying MDR on notified electronic payment modes. While the bill enables the government to notify applicable instruments and merchant categories, official sources clarified that no final decision has been made regarding implementation timelines or specific transaction limits.
Official estimates indicate that routine daily transactions will remain unaffected. Transactions under ₹2,000 account for roughly 95% of total UPI transaction volume, meaning everyday payments for groceries, milk, vegetables, and auto fares will not face any MDR charges. However, payments over ₹2,000 represent approximately 65% of the total financial value processed on the platform.
The MDR is a fee paid by businesses to payment service providers, not a direct levy on consumers making payments from their bank accounts. Industry sources suggest that the government will likely prescribe a maximum cap on the fee to keep processing costs far lower than credit card MDRs, which can reach up to 3%. Commenting on the proposal, RBI Governor Sanjay Malhotra emphasized that public financial infrastructure requires sustainable funding for continued technology investment, though the exact revenue mechanisms remain under discussion.