The rules governing UPI, which has become the most popular digital payment method in the country, are likely to undergo a major change. According to reports, the central government has proposed imposing a Merchant Discount Rate (MDR) on future commercial (merchant) UPI transactions exceeding ₹2,000. However, no date has been set for this proposal’s implementation.
What is Taxation and Other Laws?
Finance Minister Nirmala Sitharaman has proposed removing the current restriction on MDR on electronic payments through the Taxation and Other Laws (Amendment) Bill introduced in Parliament. If this change is implemented, banks and payment service providers will be able to charge an MDR of 0.25% to 0.4% on large commercial UPI payments.
However, the government has clarified that this fee will only apply to business-to-merchant (P2M) transactions. This means that person-to-person (P2P) UPI transfers will remain completely free, as before. This will not affect everyday transactions, such as sending money to family or friends.
What will be excluded?
According to government officials, the proposed limit will apply to transactions exceeding ₹2,000. Such transactions represent only about 5 percent of total UPI transactions, but their total value accounts for approximately 65 percent. This means that most transactions, such as those for milk, vegetables, groceries, auto, or small daily payments, will remain outside this scope.
How much was transacted in the month of July?
According to data, approximately 23.7 billion transactions were conducted through UPI in July, totaling approximately ₹29.9 lakh crore. Officials say that even if MDR is implemented, approximately 95 percent of UPI transactions will not incur any additional charges. Furthermore, it is not mandatory for all merchants to charge this fee from customers.
UPI has become the backbone of India’s digital payments ecosystem, with billions of transactions processed monthly. Consequently, the government and regulatory bodies are considering new options to ensure long-term sustainability and robustness. Only after the government’s final decision on this proposal will it be clear what changes will be made to the rules governing large-business UPI payments.