UPI Payments Remain Free, Govt May Introduce Nominal Merchant Fees

The Indian government has announced that Unified Payments Interface (UPI) users will not be charged for transactions, while a nominal Merchant Discount Rate (MDR) may be introduced for select merchant transactions in the future.

The Ministry of Finance stated that the vast majority of transactions will remain free of charge for both users and merchants. This clarification comes after the Lok Sabha passed a Bill to amend the Payment and Settlement Systems Act, 2007, which allows the government to permit banks and service providers to levy charges on UPI and other electronic payment modes.

The government has assured that if MDR charges are introduced, they will be nominal and significantly lower than those levied on debit and credit card payments. These charges will only apply to select merchant transactions above a specified threshold and will not be imposed across all transactions.

The UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), will decide on the MDR, if any, once the Taxation and Other Laws (Amendment) Bill, 2026, is passed by Parliament. The Lok Sabha passed the Bill on August 6.

The amendment to the Payment and Settlement Systems Act is intended to ensure the long-term sustainability of UPI, promote financial inclusion, and advance technological development in the payment sector. The government aims to strike a balance between the interests of users, merchants, and service providers.

The decision to keep UPI transactions free for users has been welcomed by industry stakeholders, including PhonePe CEO Sameer Nigam, who stated that UPI payments will remain free for consumers.

The introduction of nominal MDR charges for select merchant transactions is expected to have a minimal impact on the majority of users and merchants. However, it may provide a revenue stream for service providers and help sustain the growth of the UPI ecosystem.

In conclusion, the government's decision to keep UPI transactions free for users while introducing nominal MDR charges for select merchant transactions is a balanced approach that aims to promote financial inclusion, sustainability, and technological advancement in the payment sector.

The move is expected to have a positive impact on the Indian economy, as it will continue to encourage the adoption of digital payments and promote financial inclusion. The government's commitment to keeping UPI transactions free for users will also help to maintain public trust and confidence in the digital payment system.

Overall, the decision is a significant development in the Indian payment landscape, and its impact will be closely watched by industry stakeholders and users alike.

The government's announcement has provided clarity on the future of UPI transactions, and users can continue to make payments without incurring any charges. The introduction of nominal MDR charges for select merchant transactions will be a closely watched development, as it may have implications for the growth and sustainability of the UPI ecosystem.

In the coming months, the UPI and Services Steering Committee will play a crucial role in determining the MDR, if any, and ensuring that the interests of all stakeholders are balanced. The committee's decision will be closely watched by industry stakeholders, and its impact will be significant for the future of digital payments in India.

The government's commitment to promoting financial inclusion and technological advancement in the payment sector is a positive development, and its impact will be felt across the Indian economy. The decision to keep UPI transactions free for users while introducing nominal MDR charges for select merchant transactions is a balanced approach that aims to promote sustainability and growth in the digital payment ecosystem.