MDR Charges 2026 

MDR Charges 2026: What the New UPI Proposal Means for Users & Merchants

LATEST UPDATE DATED 09.08.2026 :

The Ministry of Finance and Finance Minister Nirmala Sitharaman issued an official clarification regarding the proposed MDR framework under the Taxation and Other Laws (Amendment) Bill:

• Zero Charges for Citizens (End Users): UPI remains 100% free for consumers. All person-to-person (P2P) transfers and everyday consumer-to-merchant payments will carry no transaction fees.
• Vast Majority of Merchants Exempt: Any future MDR will be threshold-based rather than a blanket charge. Small shopkeepers, kiranas, and micro-vendors will remain exempt, keeping the vast majority of merchant payments completely free.
• Nominal Fee on High-Value Commercials: If introduced, MDR will apply strictly to a limited set of high-value merchant transactions (e.g., above ₹2,000) at a nominal rate (roughly 0.25% to 0.4%), which is significantly lower than standard credit/debit card fees.
• NPCI Steering Committee Decides: The statutory change in the Bill is an enabling provision. The final decision, timeline, and exact rates will be determined by the NPCI-led UPI and Services Steering Committee only after the Bill is enacted.
• Purpose of the Change: The government stated the move is designed to ensure the long-term self-sustainability of India’s digital payment infrastructure, funding critical investments in cybersecurity, fraud prevention, and server upgrades while expanding UPI into rural and semi-urban areas.

MDR Charges 2026 have become a major discussion point after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changing Section 10A of the Payment and Settlement Systems Act, 2007. However, UPI remains free for consumers, and no final MDR rate, transaction threshold, or merchant category has yet been notified.

MDR Charges 2026 should therefore be understood as a possible future change in merchant payment economics rather than an immediate UPI fee. The proposed amendment would allow the Central Government to specify which electronic payment modes remain protected from charges. The government has clarified that consumers will continue to make UPI payments without transaction charges and that person-to-person transfers will remain free. If MDR is introduced for merchants later, the government says it would apply only to a limited set of transactions above a specified threshold and at a nominal rate. Businesses should therefore wait for the final notification and official MDR framework before changing prices, checkout policies, or payment acceptance strategies.

What The New Parliamentary Law Means For You, Merchants & E-Commerce

Dated 08.08.2026 :  In a major statutory update to India’s digital payments ecosystem, Parliament recently passed the Taxation and Other Laws (Amendment) Bill. A primary feature of this legislation is the amendment to Section 10A of the Payment and Settlement Systems (PSS) Act, 2007.

This change effectively ends the blanket Zero-MDR mandate that kept UPI and RuPay debit card transactions completely charge-free for all merchants since January 2020. As the Union Government and the Reserve Bank of India (RBI) prepare to issue official notifications, here is a detailed breakdown of how these changes will impact everyday consumers, small kirana merchants, and large retailers.

What is MDR? (A Quick Recap)

Merchant Discount Rate (MDR) is the processing fee charged to a merchant by banks and payment service providers whenever a customer pays digitally. This fee is distributed across:

1. Customer’s Bank (Issuing Bank): Holds the customer’s account.
2. Merchant’s Bank (Acquiring Bank): Processes and settles the transaction.
3. Payment Aggregators & Apps: Infrastructure providers like PhonePe, Paytm, or Google Pay.
4. Payment Networks: NPCI (RuPay/UPI), Visa, or Mastercard.

When zero-MDR was mandated in 2020, banks and payment aggregators lost direct transaction revenues on UPI, relying heavily on government subsidies to maintain servers, combat cyber fraud, and expand bandwidth.

Key Impacts Across 3 Stakeholder Groups

1. Common Man (Everyday Consumers)

• P2P Transfers Remain Free: Sending money to friends, family, or splitting bills via UPI will carry zero charges.
• Daily Micro-Transactions: Routine purchases (under ₹2,000) at local grocery stores, tea stalls, and vegetable vendors will remain completely free.
• No Checkout Surcharges: Payment regulations strictly prohibit merchants from adding a separate “UPI processing fee” at checkout.

2. Small Merchants & Micro-Businesses

• Turnover Exemption (up to ₹1.5 Crore): Proposed rules aim to keep micro and small merchants doing under ₹1.5 crore annual turnover completely exempt from MDR.
• Low Ticket-Size Protection: Over 85% of everyday merchant transactions fall below ₹500, ensuring small kiranas face zero financial burden.
• No Cash Reversion: Small vendors can continue using QR codes freely without fear of shrinking profit margins.

3. Large Retailers & E-Commerce Enterprises

• Targeted MDR (0.25% – 0.5%): High-value payments exceeding ₹2,000 processed at major retail chains, supermarkets, hotels, airlines, or online platforms (Amazon, Flipkart) will attract a nominal fee capped between 0.25% and 0.5%.
• Absorption as Operating Cost: Large corporations will absorb this as a standard payment processing expense.
• Shift in Online Discounts: E-commerce platforms may adjust checkout incentives—scaling back aggressive cashback deals on high-ticket items like smartphones or laptops paid via UPI.

Stakeholder Impact Summary

Why Was This Law Necessary?

While zero-MDR accelerated UPI adoption across India, it created a funding gap for banks and payment service providers. Maintaining high server uptime, preventing cybersecurity threats, and scaling infrastructure for billions of monthly transactions requires continuous capital investment.

By enabling a flexible, notified framework that levies a minor fee only on high-value commercial transactions at large retailers, India secures a self-sustaining financial model for its digital payment network while keeping payments free for ordinary citizens and small businesses.

The amendment to the Payment and Settlement Systems Act (via the Taxation and Other Laws Amendment Bill) shifts the market dynamics significantly for foreign card networks like Visa and Mastercard: 

Key Effects on Visa and Mastercard

• Leveling the Playing Field: Between 2020 and 2026, indigenous networks (RuPay debit cards and UPI) operated under a mandatory Zero-MDR regime, while global networks (Visa and Mastercard) were free to levy standard MDRs (often 0.9% to 2%). Removing the zero-MDR mandate on local rails removes this stark policy asymmetry.
• Reduced Merchant Arbitrage: Previously, merchants routinely pushed customers toward UPI or RuPay QR codes to avoid paying the higher 1%–2% MDR associated with Visa or Mastercard. If UPI/RuPay MDR on large ticket sizes is reintroduced (e.g., at 0.25%–0.5%), the cost gap shrinks, reducing merchant resistance to card terminal processing.
• Incentive for Domestic Innovation (RuPay Credit on UPI): Visa and Mastercard currently lack deep integration with UPI’s credit infrastructure. As RuPay credit cards gain traction via UPI with a clear MDR model, international card networks face pressure to negotiate similar interoperability deals with NPCI and RBI to remain competitive in daily retail payments.
• Focus on Premium & Cross-Border Segments: Because UPI handles localized micro-transactions efficiently, Visa and Mastercard will double down on high-margin segments where they maintain strong advantages: travel rewards, international spending, premium luxury credit cards, and corporate expense management.

Comparative Overview 

This article was drafted by Gemini  AI and curated for accuracy and relevance

Government clarification on UPI MDR charges
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2296594

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