Proposed Bill reopens the door to MDR on UPI payments
The Taxation and Other Laws (Amendment) Bill, 2026 would allow the government to specify which digital payment modes remain exempt from merchant charges. It does not impose MDR on UPI now, but could enable differentiated treatment, including for larger merchants, through a future notification.
What happened
The government’s proposed Bill would let it decide which electronic payment modes remain exempt from merchant charges, reopening debate on MDR for UPI,
Key facts
- Taxation and Other Laws (Amendment) Bill, 2026
- Payment and Settlement Systems Act, 2007
- March 31, 2041
Why this matters
Reassess partnerships and acquisition targets across payments infrastructure, as differentiated UPI pricing could raise the strategic value of routing, reconciliation and merchant-payment platforms.
What to watch
- Final bill text and parliamentary committee language defining the government's notification power and any merchant-size or payment-mode criteria.
- A Ministry of Finance or RBI notification naming exempt modes, transaction thresholds, merchant categories, or differentiated MDR caps.
- Union Budget allocations or changes to incentive schemes supporting UPI/low-value digital-payment acceptance.
- NPCI, bank, payment-aggregator, and merchant-association statements on reimbursement gaps, pricing, or large-merchant economics.
- Growth in credit-on-UPI and high-value UPI usage, which could create a politically easier entry point for differentiated charges.
- Any change in merchant discount rate treatment for RuPay credit cards on UPI or commercial P2M transactions.
- Model payment acceptance costs by merchant tier, UPI transaction value, and online versus offline channel; treat large-enterprise MDR exposure as a contingent cost rather than an immediate P&L change.
- Renegotiate payment-aggregator and acquiring contracts to include notification-driven repricing, MDR pass-through caps, and advance-notice requirements.
- Accelerate checkout routing capability across UPI, cards, wallets, net banking, and credit-on-UPI so payment mixes can be optimized if UPI economics change.
- Prepare a merchant-tier advocacy position: preserve zero MDR for micro and small merchants while seeking predictable caps, clear thresholds, and no retroactive charges for enterprise merchants.
- Assess whether subscription, loyalty, instant-refund, or embedded-credit offers can offset potential UPI acceptance costs without discouraging customer adoption.