UPI Introduces 0.3% Merchant Fee on Transactions Over ₹2,000

The Unified Payments Interface (UPI) is poised to introduce a 0.3% Merchant Discount Rate (MDR) on transactions valued at ₹2,000 and above. An official announcement regarding this new fee structure is anticipated within the next two weeks.

This charge will be borne by businesses, paid directly to payment processors, while consumers will continue to make UPI transactions free of charge. The Department of Financial Services is expected to issue a gazette notification within a week, detailing electronic payment methods that will maintain statutory protection from charges.

Key Implementation Details

• MDR Percentage: 0.3%
• Transaction Threshold: ₹2,000 and above
• DFS Notification: Expected within one week
• Full Announcement: Expected within two weeks

Following the gazette notification, the UPI and Services Steering Committee, operating under the National Payments Corporation of India (NPCI), will outline the specific scope and structure of the MDR.

Understanding the Merchant Discount Rate

MDR represents a fee that businesses pay to payment processors for the privilege of accepting digital payments. This mechanism ensures that the underlying payment infrastructure can be maintained and further developed.

The government has consistently affirmed that UPI transactions will remain free for consumers, a commitment reiterated during a parliamentary debate on the Taxation and Other Laws (Amendment) Bill, 2026. This bill specifically amended Section 10A of the Payment and Settlement Systems Act, 2007, to permit MDR on UPI transactions exceeding a defined threshold.

Evolution of UPI Transaction Charges

Prior to January 2020, an MDR of up to 0.3% was applied to person-to-merchant (P2M) UPI transactions. The introduction of zero MDR in January 2020 aimed to significantly accelerate the adoption of digital payments across India.

• Pre-2020: MDR up to 0.3% on P2M UPI transactions.
• January 2020: Zero MDR implemented to boost adoption.
• Government Incentive: A 0.15% MDR equivalent incentive was provided to banks for transactions up to ₹2,000.

The substantial surge in UPI transactions since the Covid-19 pandemic has necessitated significant investments in payment infrastructure by banks and intermediaries. This growth has prompted the industry to advocate for the reinstatement of charges to ensure the long-term sustainability of the payment system.

UPI’s Scale and Sustainability Challenges

UPI stands as the world’s largest real-time payment system by volume, processing nearly 50% of global transactions. Within India, it accounted for 85% of all digital payment transactions by volume in 2025-26.

• Global Transaction Share: Nearly 50%
• India’s Digital Payments Share (2025-26): 85% by volume
• FY26 Total Transactions: 241.62 billion
• FY26 Total Value: ₹314.23 lakh crore

The proposed 0.3% MDR on higher-value UPI transactions remains substantially lower than the 1-3% MDR typically levied on credit card transactions and up to 0.9% on debit card transactions.

Legislative Backing and Future Directions

The Parliamentary Standing Committee on Finance recently urged for the swift implementation of a tiered MDR framework for UPI transactions. The committee warned that delays could leave payment service providers dependent on insufficient government subsidies, thereby hindering crucial investment in payment infrastructure.

• Budgetary Allocation (2026-27): ₹2,000 crore
• Estimated Operational Cost: ₹20,700 crore
• Coverage Ratio: Budget covers only about 10% of actual costs

To mitigate the financial strain on the exchequer, the Department of Financial Services is evaluating two primary options. These include reinstating MDR for specific high-value transactions or merchants, and introducing a tiered incentive structure designed to gradually phase out government support.