UPI remains free for now, but proposed law revives MDR questions for merchants
The Taxation and Other Laws (Amendment) Bill, 2026 does not immediately introduce UPI charges. It could, however, change how zero-MDR payment modes are designated, leaving future merchant discount rate policy to a Finance Ministry notification. Any MDR shift could raise acceptance costs for retailers.
What happened
The proposed Bill may shift how zero-MDR payment modes are designated, sparking concern over future UPI merchant charges. Experts say it preserves the current
Key facts
- UPI MDR currently zero
- Debit-card MDR: 0.25%-1%
- Credit-card MDR: 1%-3%
- FY27 small-merchant P2M incentive allocation: ₹2,000 crore
- FY26 allocation: ₹2,196 crore
- FY25 allocation: ₹1,923 crore
- NPCI FY25 revenue expenditure: ₹2,270 crore
- NPCI FY25 capital expenditure: ₹742 crore
- Small-merchant P2M transactions below ₹2,000
Why this matters
Payments partnerships and acquisition models should stress-test potential MDR scenarios, as future policy changes could reshape merchant economics and ecosystem bargaining power.
What to watch
- Final bill text and parliamentary committee language defining or delegating authority over prescribed payment systems.
- Finance Ministry notification changing the designation of zero-MDR payment modes or setting merchant, transaction-value, or sector thresholds.
- RBI, NPCI, bank, acquirer, and payment-aggregator consultation papers or public lobbying on UPI economics.
- Union Budget or fiscal documents that alter incentive funding for banks and payment providers supporting UPI transactions.
- Payment-aggregator notices revising merchant pricing, settlement charges, platform fees, or cross-subsidized service bundles.
- Evidence of large merchants reducing UPI cashback, adding checkout incentives for other tenders, or renegotiating acquiring rates.
- Model payment-acceptance costs under zero, 10 bps, 25 bps, and 50 bps MDR assumptions, segmented by UPI volume, ticket size, and merchant turnover.
- Review acquiring contracts, gateway fees, reconciliation charges, and settlement terms to identify existing costs that could compound any formal MDR.
- Build payment-steering options that preserve conversion, including incentives for lower-cost methods, bank-account routing, loyalty-linked tender offers, and selective card/UPI promotion changes.
- Monitor whether large-format retail, e-commerce, food delivery, and marketplace sellers are treated differently from MSMEs in any future designation.
- Avoid immediate consumer-facing pricing or checkout changes; communicate internally that the bill creates policy optionality rather than an active UPI fee.