Government paves way for MDR fee on UPI, RuPay debit card payments to big merchants

Usually in the range of 1-3%, a Merchant Discount Rate (MDR) is levied on merchants by banks that process debit and credit card payments to help meet transaction processing, settlement, and infrastructure costs. Since January 2020, there has been no MDR on RuPay debit cards and UPI transactions to promote the adoption of digital payments across the country.

In lieu of the lack of MDR, the government has been subsidising payments of up to Rs 2,000 made to small merchants through its ‘Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)’. The incentive offered is capped at 0.15% of the transaction value. Large merchants are not covered under this scheme.

The Budget for 2026-27 estimated the subsidy payout under this scheme to be Rs 2,000 crore in the current fiscal. In 2025-26, Rs 2,196.21 crore was paid as subsidy, up from Rs 1,922.77 crore in 2024-25.

However, the Standing Committee on Finance had noted in its March report that transactions of over Rs 2,000 constituted 67% of all payments in value terms, with the payment ecosystem bearing the cost related to the processing, settlement, and infrastructure costs of these transactions.

In July, a total of 2,236 crore UPI transactions worth Rs 29.88 lakh crore were made.

“The incentive provided under the scheme during 2021-22 to 2024-25, constitutes only 11% of the cost incurred by the digital payment industry and 14% of the potential MDR collection, if MDR would have been permitted,” the committee report had said.

As part of the Taxation and Other Laws (Amendment) Bill, 2026, the finance ministry seeks to amend Section 10A of the Payment and Settlement Systems Act, 2007 such that the exemption from any bank charges to electronic payments under section 269SU of the Income-tax Act, 1961 is removed. Section 269U applies to every person having a business turnover of over Rs 50 crore.

Section 10A of the Payment and Settlement Systems Act, 2007 says no bank or system provider can impose any charge on payments made through electronic modes prescribed under Section 269SU. These modes are RuPay debit cards, BHIM-UPI, and UPI-QR code.

As such, the finance ministry’s proposal in the amendment bill effectively sets the ground for UPI and RuPay debit card payments to large merchants such as Amazon and Flipkart to attract a Merchant Discount Rate (MDR) fee.

The bill is likely to be tabled in Parliament this week.