India Introduces Bill to Levy UPI Merchant Discount Rate

The Government of India introduced the Payment and Settlement Systems (Amendment) Bill in Parliament on August 4, 2026. The legislation amends the Payment and Settlement Systems Act, 2007, by removing the structural guarantee that Unified Payments Interface (UPI) transactions remain exempt from Merchant Discount Rate (MDR) charges. This repeals the zero MDR provision established in January 2020, granting the central government the authority to notify which electronic payment modes will attract fees.

Finance Minister Nirmala Sitharaman tabled the bill following a March 2026 report from the Parliamentary Standing Committee on Finance, which warned that the zero MDR regime had become financially unsustainable due to rising server and processing costs. Payment companies and the Payments Council of India have similarly argued that a sustainable revenue model is necessary for infrastructure and cybersecurity investments, especially as previous government subsidies were not disbursed.

While the bill does not immediately impose charges, policymakers are considering an MDR of 0.3% to 0.5% (or 25 to 30 basis points) for transactions exceeding 2,000 rupees at large merchants, specifically those with annual turnovers over 15 million rupees. The proposal explicitly excludes charges for consumers and person-to-person transfers to avoid disrupting adoption. A Jefferies report estimates this shift could generate a revenue pool of 50 billion to 100 billion rupees, benefiting fintech firms such as Paytm and Pine Labs as the ecosystem scales toward a projected 150 billion monthly transactions.