UPI fee may be imposed again after 6 years:MDR charges were removed in 2020; now Finance Ministry proposes changes to Payment Act

The Finance Ministry has proposed amendments to laws related to digital payments. This could lead to the reintroduction of MDR (Merchant Discount Rate) on UPI payments in the future. Let’s understand what impact this decision will have on common users, shopkeepers, and the banking system.. Question 1. Which law has the Finance Ministry proposed to change and what will change because of it? Answer: The Finance Ministry has proposed to remove or amend Section 10A of the Payment and Settlement Systems Act, 2007. According to a Moneycontrol report, currently this section prevents banks and payment companies from charging any kind of fee or charge on UPI and other digital payment modes. After the change in this rule, the government will get the legal authority to decide which digital payment modes should be kept free and on which modes charges should be allowed. Question 2. Does this mean that charges will have to be paid immediately for using UPI now? Answer: No, this amendment does not mean at all that charges are being immediately applied on UPI payments. This step only gives the government legal flexibility to make rules and policies for the future. After the law changes, whenever the government wants, it can issue a notification to decide what kind of payments will have fees applied and which payments will remain completely free. Question 3. What is MDR and if it is implemented, who will be affected? Answer: MDR is the fee that a merchant pays to banks and payment service providers like PhonePe, Google Pay, Paytm in exchange for processing digital transactions. If MDR is re-implemented on UPI in the future, then its impact will be on merchants and the payment ecosystem. Common citizens who make payments through UPI for daily shopping will not have any direct charge applied on them. Question 4. When was MDR removed from UPI and RuPay cards and why? Answer: The government made MDR zero on UPI and RuPay debit card transactions in January 2020. This was done with the aim of promoting digital payments and strengthening the cashless economy in the country. Since then, UPI payments have expanded rapidly in the country. Question 5. Why did the government need to make changes to this law? Answer: Running the UPI ecosystem for a long time without any earnings is proving to be financially challenging. Recently in March, the Parliamentary Standing Committee on Finance also expressed concern about this. The committee had said that the zero-MDR policy is causing losses to the payment industry and banks. A sustainable revenue model is extremely necessary to compensate for this. Question 6. How much incentive does the government currently give to banks and payment companies? Answer: The government has allocated an incentive budget of ₹2,000 crore to support RuPay debit cards and low-value BHIM-UPI merchant transactions for the financial year 2026-27. This incentive scheme was started in FY2021-22. However, the parliamentary committee noted that this amount covers only a very small portion of the actual costs of the payment industry. Question 7. What is the main objective of this legal amendment? Answer: The main objective of this amendment is to balance two things. On one hand, maintaining an affordable and easy digital payment system for the general public. On the other hand, keeping the UPI ecosystem (banks, fintech companies) financially strong and sustainable. Question 8. What is likely to happen in the future? Answer: The government will review the situation after the legal amendment is passed. It is being speculated that a nominal MDR may be implemented in a phased manner for large merchants or high-value transactions, while small shopkeepers and common consumer payments will be kept free. Knowledge Part: ‘Know What is MDR?’ Whenever you make a payment at a shop by scanning a card or UPI, banks, payment gateways and software companies incur costs to process that transaction securely. The fee charged from the merchant in exchange for this service is called ‘Merchant Discount Rate’ (MDR). Useful Tip for Readers Common users need not worry. Even if MDR returns in the future, according to the rules, the merchant has to pay this charge, not the customer. Additionally, your personal UPI transfer, i.e., person to person, will remain completely free.