Tax amendment bill opens door to UPI MDR on larger merchant payments

Lok Sabha’s tax-law amendments could enable the government to levy MDR on UPI transactions above ₹2,000 for merchants with annual turnover of ₹1 crore to ₹1.5 crore. Inc42 reports a proposed rate of 0.05%–0.07%; implementation and final thresholds remain subject to government notification.

— Source publishedFri, 7 Aug, 2026, 14:37 IST·First seen Fri, 7 Aug, 2026, 14:47 IST·Source Inc42 · Buzz

What happened

Lok Sabha passed tax-law amendments that also enable the government to introduce MDR on UPI payments. Inc42 reports a proposed 0.05%-0.07% charge for

Key facts

  • 0.05%-0.07% proposed MDR
  • UPI transactions above ₹2,000
  • merchants with annual turnover of ₹1 Cr to ₹1.5 Cr
  • FY27 to FY47
  • 20-year tax exemption window
  • $57 Bn committed data-centre investment
  • $17 Bn Indian public-cloud market in 2025
  • $44 Bn projected public-cloud market by 2030

Why this matters

Payments, POS and merchant-acquiring targets with strong routing, surcharge-management and enterprise merchant capabilities could gain strategic relevance if UPI pricing becomes differentiated.

What to watch

  • Final bill language, parliamentary passage, and the specific enabling provision for UPI MDR.
  • Government notification defining turnover threshold, transaction threshold, merchant categories, effective date, and whether MDR is capped or optional.
  • Clarification on who bears the fee: merchant, customer, PSP, bank, or a shared subsidy mechanism.
  • NPCI, RBI, and finance ministry guidance on merchant discount rate, surcharge restrictions, routing, and customer disclosure.
  • Payment aggregator and acquiring-bank pricing circulars, especially for enterprise merchants and QR acceptance bundles.
  • Retail-industry lobbying from large chains, e-commerce platforms, restaurant aggregators, and merchant associations.
  • Changes in UPI transaction mix: decline in high-ticket UPI share, increased card use, or more split-tender behavior.
  • Model UPI acceptance cost by ticket size, store format, merchant entity turnover, and payment mix; stress-test margins at 5 bps and 7 bps.
  • Review checkout routing and tender-steering rules for high-value transactions, ensuring any incentives or prompts remain compliant and customer-friendly.
  • Renegotiate PSP, acquirer, and gateway contracts now for MDR caps, pass-through transparency, routing controls, reconciliation SLAs, and volume-based rebates.
  • Segment merchant entities and franchise structures to determine which locations could cross the eventual turnover threshold.
  • Prepare customer communication and cashier training plans to avoid visible UPI friction if payment-method nudges become necessary.
  • Prioritize closed-loop wallets, co-branded cards, pay-later, and loyalty-linked tender options only where their net economics beat UPI after rewards, fraud, and settlement costs.

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