Government Proposes Merchant Discount Rate (MDR) on Select UPI Payments

Key Facts

• Date of proposal: 3 August 2026
• Proposed amendment: Payment and Settlement Systems Act, 2007, specifically Section 10A
• Proposal: Reintroduce Merchant Discount Rate (MDR) on select UPI and RuPay debit card payments
• MDR currently abolished for UPI and RuPay since January 2020
• Expected applicability: Large merchants with annual turnover above ₹50 crore or individual transactions above ₹2,000
• Exemptions: Consumers and small merchants with annual turnover up to ₹1.5 crore
• Proposed MDR cap: Not exceeding 0.5% of transaction value for UPI payments
• Relevant legislation: Taxation and Other Laws (Amendment) Bill, 2026, to be tabled first week of August 2026
• UPI ecosystem metrics: 23+ billion transactions worth ₹29.9 lakh crore in July 2026

Background & Context

Merchant Discount Rate (MDR) is a fee paid by merchants to banks or payment service providers for processing card or digital payments. India eliminated MDR charges on UPI and RuPay debit card transactions in January 2020 to encourage digital payment adoption. However, the rapid growth of UPI—with transaction volume crossing 23 billion in July 2026—and concerns raised by the Parliamentary Standing Committee on Finance about the financial sustainability of the UPI ecosystem have prompted the government to revisit this policy. The zero MDR provision under Section 10A of the Payment and Settlement Systems Act, 2007 currently bars charging MDR on certain digital transactions. The proposed amendment aims to remove this zero MDR clause for select merchants to create a sustainable revenue stream to support the expansion and maintenance of the digital payments infrastructure.

Why This Matters for Exams / Exam Relevance

This development is relevant for understanding contemporary Indian government policies related to digital payments, financial regulation, and fintech. The Payment and Settlement Systems Act, 2007 and its Section 10A are important legal frameworks governing payment infrastructure in India, frequently referenced in banking and finance syllabi. The role of the National Payments Corporation of India (NPCI) in pioneering UPI and RuPay systems, and government efforts to balance digital adoption with ecosystem financial viability, illustrate practical regulatory dynamics. This topic encompasses themes in economy and governance sections of competitive exams such as UPSC, state PSCs, and banking exams.

Points to Remember

• Section 10A of the Payment and Settlement Systems Act, 2007 enacts a zero MDR provision on certain digital transactions.
• UPI, launched by NPCI, is an instant bank-to-bank payments system widely used in India.
• RuPay is India9s domestic card payment network developed by NPCI.
• Merchant Discount Rate (MDR) is charged as a percentage of the transaction value.
• The government abolished MDR on UPI and RuPay debit card transactions in January 2020.
• The current proposal (August 2026) aims to reintroduce MDR capped at 0.5% for large merchants only.
• Exemptions apply for consumers and merchants with annual turnover up to ₹1.5 crore.
• Proposal date: 3 August 2026; related bill: Taxation and Other Laws (Amendment) Bill, 2026.