No more free UPI in India? Centre mulls fee for payments above Rs 2,000 under proposed law change
The amendment, presented by Finance Minister Nirmala Sitharaman, only creates a legal framework that would allow the government to introduce a Merchant Discount Rate (MDR) later if it chooses to do so.
PTC News Desk: India's free UPI payment system may see its biggest policy change in years. The government has introduced amendments to the Payment and Settlement Systems Act in Parliament that could allow merchant charges on certain UPI transactions in the future.
No charges have been introduced yet. The amendment, presented by Finance Minister Nirmala Sitharaman, only creates a legal framework that would allow the government to introduce a Merchant Discount Rate (MDR) later if it chooses to do so. The payments industry has been asking for such a move for years to help support the growth of digital payments.
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One proposal being discussed is to charge an MDR of 0.3% to 0.5% on UPI transactions above Rs 2,000. However, the fee is expected to apply only to merchants with an annual turnover of more than Rs 1.5 crore. This means customers are unlikely to pay any extra, while small businesses could continue to use UPI without charges.
Another option under consideration is to calculate the fee based on a merchant's annual turnover instead of the value of each transaction. The idea is to ensure that larger businesses bear the cost, while small shops and local retailers remain exempt.
Merchant Discount Rate (MDR) is a fee that merchants pay to banks and payment service providers for processing digital payments. Merchants already pay MDR on card payments, with credit card transactions usually attracting a fee of around 1.5%, while debit card charges are generally lower. UPI has so far remained free for merchants, making it a popular payment method.
Why is this being considered?
According to industry executives, offering UPI services without any merchant fee has made it difficult to build a sustainable business model. Since banks and payment companies do not earn from processing UPI payments, they say it limits their ability to invest in new technology, improve payment infrastructure and expand digital payment services. They believe that introducing a small MDR on high-value transactions could help support the long-term growth of India's digital payments ecosystem.