Will UPI Transactions Be Charged? Government's New Proposal Explained
The government has proposed amendments to the Payment and Settlement Systems Act, creating a legal framework for a possible Merchant Discount Rate (MDR) on certain UPI transactions. Here's what the proposal means for merchants and customers.
August 05, 2026: The Narendra Modi government's push for a Digital India has made UPI (Unified Payments Interface) the most widely used digital payment system in the country. Over the past few years, millions of people have shifted from cash to digital payments, making UPI an essential part of everyday life. From small roadside vendors to large businesses, UPI has become the preferred mode of payment because of its convenience and zero transaction charges for users. However, a new proposal by the government has sparked concerns that some UPI transactions could attract charges in the future.
According to reports, the government has proposed amendments to the Payment and Settlement Systems Act in Parliament. While the proposed changes do not introduce any new charges immediately, they are expected to create a legal framework that could allow the introduction of a Merchant Discount Rate (MDR) on certain UPI transactions in the future. As of now, there has been no official approval to levy any fee, and UPI payments for customers will continue to remain free.
Proposed MDR Charges May Apply Only to Large Merchants
Reports suggest that one of the proposals under discussion is to introduce an MDR of 0.3% to 0.5% on UPI transactions above ₹2,000. However, the proposal is still at the discussion stage, and no final decision has been taken by the government. If implemented, the charges would primarily be applicable to merchants rather than individual customers.
The proposed framework is also expected to protect small businesses from any additional burden. According to reports, the MDR may apply only to merchants whose annual UPI transaction volume exceeds ₹1.5 crore. Smaller merchants and local shopkeepers are likely to remain outside the scope of these charges, allowing them to continue accepting UPI payments without paying any transaction fee.
It is important to note that the proposed legal amendment does not mean UPI charges have been introduced. Instead, it gives the government the authority to introduce such a mechanism in the future if required. Any decision to impose MDR will be taken only after further discussions and consultations with stakeholders.
For now, customers can continue making UPI payments without any additional charges. The proposal has, however, started a wider debate about the future of digital payments in India and whether introducing merchant charges could affect the rapid growth of UPI. The government's final decision will be closely watched by banks, payment service providers, merchants and millions of users who rely on UPI for their daily transactions.
