UPI to remain free for users; nominal MDR may apply to select merchant transactions

The government on Saturday said consumers making payments through UPI will not face any transaction charges, while any future merchant discount rate (MDR) will apply only to a limited set of merchant transactions above a certain threshold.

“All Person-to-Person transactions will continue to be free of charge,” the government said.

It added that the vast majority of merchant transactions will also remain free of charge on UPI. If introduced, MDR will be threshold-based and not levied across all transactions.


Also Read: UPI to remain free for users; nominal MDR may apply to select merchant transactions

“As and when MDR charges are introduced, they will apply only to a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs,” the government said.

The government said the proposed amendment to the Payment and Settlement Systems Act (PSS Act) is an enabling provision aimed at ensuring UPI’s long-term sustainability, technological advancement and resilience against emerging risks.

Once Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007, the “UPI and Services Steering Committee” headed by NPCI will decide on the MDR, if any.

The government said the amendment was prompted by the exponential growth in UPI transaction volumes, which requires significant and continuous upgrades in cybersecurity, fraud prevention and infrastructure.

It also said increasing competition by encouraging more companies to expand their operations requires a self-sustaining revenue model.

“Reliance on subsidies alone is not viable for the next wave of growth. A balanced framework is required to ensure that UPI remains robust, inclusive, and future-ready,” the government said.

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UPI processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone, the government said. UPI is now live in 11 foreign countries, while many other countries have shown interest.

The government also rejected reports suggesting that external influences were driving the policy changes, calling them “unfounded, completely false and misleading”.

It said UPI was introduced in 2016 and made free of charge for both merchants and citizens since January 2020.

Also Read: UPI MDR explained: What potential charges above Rs 2,000 payments on Paytm, GPay & other apps mean for you and merchants

“UPI will remain free for citizens,” the government said, adding that any future MDR would be nominal and applicable only to a limited set of merchant transactions.