The Government of India has indicated that a fee may soon be applied to Unified Payments Interface (UPI) transactions exceeding Rs 2,000. Finance Minister Nirmala Sitharaman addressed this issue in a recent post on X, where she reaffirmed that any proposed fees would not affect end users. This statement was made in response to Congress leader Jairam Ramesh, who raised concerns that the government might exploit this as an opportunity to impose charges on all forms of digital payments.

In her communication, Sitharaman highlighted that the Merchant Discount Rate (MDR) would only be applicable to merchants engaging in UPI transactions, not to common users. She urged Ramesh to refrain from disseminating misleading information regarding potential changes to UPI’s fee structure.

Reasons for Considering UPI Fees

Sitharaman explained the rationale behind contemplating an MDR on UPI transactions. She stated that implementing such a fee would facilitate banks and financial technology (fintech) firms in investing more in infrastructure, innovation, and security. The Finance Minister believes that this, in turn, would benefit all UPI users by improving the overall payment ecosystem.

Currently, banks and fintech companies do not derive revenue from processing UPI transactions. This financial limitation restricts their capacity to invest in technological advancements and enhance user services. Sitharaman’s proposal aims to address this issue by generating additional funds through merchant fees.

Despite the discussions surrounding the MDR, it is important to note that a definitive decision concerning UPI fees has yet to be made. Sitharaman pointed out that the UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI), will decide on the MDR after Parliament approves the Taxation and Other Laws (Amendment) Bill, 2026.

Details on Proposed MDR Fee

While the government has not officially outlined the specific details of the proposed MDR for UPI transactions, two potential frameworks are reportedly under consideration. The first suggests an MDR rate ranging from 0.3 per cent to 0.5 per cent for transactions exceeding Rs 2,000, targeted at merchants with an annual turnover beyond Rs 1.5 crore. Notably, transactions of this value make up only about 5 per cent of all UPI transactions but account for approximately 65 per cent of the total transaction value.

The second proposal is to base the fee on a merchant’s annual turnover rather than the individual transaction amount itself. In addition, the government may implement a maximum limit on the total fee charged to prevent excessive costs for merchants.

Given the current landscape, it is anticipated that larger businesses might be the primary entities affected by the MDR fee, while smaller shops and individual users may face minimal impact. Consumers using UPI for everyday payments, such as bills and grocery purchases, are unlikely to experience direct charges related to this new fee structure.

Impact Assessment of MDR on Businesses

The introduction of an MDR fee for UPI transactions is expected to primarily influence larger commercial enterprises rather than smaller neighbourhood shops or retailers. Consumers can feel assured that their regular transactions will largely remain unaffected for the time being.

For context, merchants currently incur fees on card transactions; typically, the MDR for credit cards is about 1.5 per cent but may reach as high as 3 per cent in certain situations, while debit card fees are generally lower. It is essential to remember that the proposed amendment is designed to give the government the authority to impose such fees on UPI at its discretion.

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