The Centre is reportedly considering allowing a Merchant Discount Rate (MDR) on select UPI transactions above Rs 2,000, marking a possible shift in India's digital payments policy. If approved, the move would primarily apply to payments made to businesses and large merchants, while person-to-person (P2P) UPI transfers are expected to remain free. No final decision has been taken so far.

What's Being Proposed?

According to reports, the government is weighing a proposal to allow banks and payment service providers to charge an MDR of around 0.25% to 0.4% on UPI transactions exceeding Rs 2,000.

The proposed fee would apply only to commercial transactions made to merchants and not to transfers between individuals.

Will Customers Have To Pay?

Under the proposal, the MDR would be borne by merchants rather than customers.

However, businesses may choose to absorb the additional cost or pass it on indirectly through product pricing. Everyday UPI transfers between friends, family members and other personal accounts are expected to remain free.

Why Is The Government Considering The Move?

UPI has witnessed remarkable growth over the past few years, making India one of the world's largest digital payments markets. While consumers and merchants currently enjoy zero-MDR UPI payments, banks and payment service providers have argued that maintaining the payment infrastructure involves significant costs.

The proposal aims to create a sustainable revenue model for banks, fintech companies and payment service providers that process billions of UPI transactions every month.

Large Merchants May Be In Focus

Reports suggest that the proposed charges may be limited to large businesses, while smaller merchants could remain exempt.

High-value merchant transactions account for a relatively small share of UPI's total transaction volume but contribute a significant portion of the overall transaction value, making them the primary focus of the proposal.

No Final Decision Yet

The government has not officially announced any changes to the existing UPI fee structure.

The proposal is still under consideration, and the final framework—including the transaction threshold, merchant categories and MDR rate—has not yet been finalised.

TVN Insight

If implemented, the move would mark the first major change to India's zero-MDR UPI regime in years. While the proposal is aimed at ensuring the long-term sustainability of the country's digital payments ecosystem, its impact will depend on whether merchants absorb the additional cost or pass it on to consumers.

Until an official notification is issued, UPI transactions will continue under the existing rules.