UPI payments may no longer be free; Centre weighs charges
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New Delhi: The Union government is considering bringing back the Merchant Discount Rate (MDR) for select UPI transactions, a move that could end the zero-charge regime for large merchants, according to a report by The Economic Times.
The proposal under discussion would apply only to businesses with an annual turnover of ₹1 crore to ₹1.5 crore or more and only for UPI transactions exceeding ₹2,000. The government is reportedly considering an MDR of 0.05% to 0.07%, while small merchants and ordinary consumers are expected to remain unaffected. Around 90% of merchants accepting UPI payments fall in the small-business category and would be exempt.
The Centre had abolished MDR for large merchants in 2020 to encourage digital payments, triggering explosive growth in UPI usage. According to National Payments Corporation of India (NPCI) data, UPI transactions surged from just 2 crore in 2016-17 to 24,200 crore, while the value of transactions jumped from ₹0.07 lakh crore to ₹314 lakh crore. In June alone, UPI processed 2,272 crore transactions worth ₹28.92 lakh crore.
The rapid expansion has significantly increased the financial burden on banks and payment service providers. Industry stakeholders argue that government subsidies meant to support the payment infrastructure have fallen short of covering operational costs, prompting renewed discussions on restoring MDR.
The Parliamentary Standing Committee on Finance had earlier recommended introducing MDR on UPI transactions in a phased manner. While high-level discussions are underway, the government has not yet taken a final decision on the proposal.