UPI MDR 2026: What Has Changed and What Merchants Need to Know

UPI payments are not being charged under a new MDR regime today. The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 on 6 August 2026. The amendment creates a legal framework under which the Central Government could notify electronic payment modes that remain exempt from charges, potentially opening the way for MDR on modes or transactions that are not exempted. The Bill still has to clear the Rajya Sabha and receive Presidential assent, and no final UPI MDR rate or implementation notification has been issued.

For merchants, the important distinction is between what has changed in law and what is still being discussed. The legislation creates the enabling framework; it does not itself impose an MDR. Proposed figures such as an MDR of around 0.04% for select merchants and a possible annual-turnover threshold of more than ₹4 crore are reported framework proposals, not notified rules.

At a glance: What merchants need to know

1. Has UPI MDR returned? Not yet. No operative MDR has been notified under the new framework.
2. What changed? The Lok Sabha passed legislation that would give the Central Government greater flexibility to notify exemptions from charges on specified electronic payment modes.
3. Are consumers being charged? No direct consumer UPI charge has been notified. Current statements from the Finance Minister and Payments Council of India indicate the proposed MDR framework is merchant-side.
4. Has a final MDR rate been announced? No.
5. Rate currently reported in one proposed framework: around 0.04% for select merchants. This remains a proposal.
6. Turnover threshold currently reported in that proposal: annual turnover above ₹4 crore. This also remains under discussion.
7. What should merchants do now? Do not change pricing or payment acceptance arrangements based solely on unnotified proposals. Monitor the final legislation, government notification and operating framework.

What has actually changed?

The Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026 on 6 August 2026. The Bill amends the Payment and Settlement Systems Act, 2007 and changes the legal mechanism around the earlier zero-MDR framework for specified electronic payments.

The important point is that the Bill is enabling legislation. It does not announce a UPI MDR rate, tell banks or payment service providers to start charging merchants immediately, or set the final merchant eligibility criteria.

The Bill still needs to be passed by the Rajya Sabha and receive Presidential assent before it becomes law. Even after enactment, an actual MDR regime would require the relevant government notification and the operating framework to be finalised.

What has not happened yet?

1. No binding UPI MDR rate has been notified.
2. No final merchant turnover threshold has been notified.
3. No immediate consumer UPI fee has been introduced.
4. Banks and payment service providers do not have a new blanket authority to start charging UPI MDR simply because the Lok Sabha has passed the Bill.
5. The final structure, scope and timing remain subject to the legislative and regulatory process.

This distinction matters because headlines saying that ‘UPI MDR is back’ can overstate the current position. What has happened is that the statutory framework is being changed to allow a future charging framework; the operative charging regime is still pending.

Why is MDR being discussed again?

The debate is fundamentally about the economics of operating India’s real-time payments infrastructure at very large scale. UPI requires investment in servers, network capacity, fraud and risk controls, cybersecurity, settlement infrastructure, customer support and other operational systems.

The zero-MDR model removed a transaction-based merchant fee from eligible UPI payments. The government has supported the ecosystem through incentive schemes, while banks, payment system providers and other participants have continued to invest in the infrastructure required to process the growing transaction load.

The scale is now substantial. UPI processed roughly 24 billion transactions worth about ₹30 lakh crore in a single month around this period, making the question of how the ecosystem is sustainably funded increasingly important. The precise monthly figures vary by month; the underlying point is the scale of the payment network.

Who would pay UPI MDR if it is introduced?

MDR is a merchant-side payment-processing charge. If an MDR framework is introduced for eligible UPI transactions, the commercial cost would be associated with the merchant accepting the payment rather than being a fee directly charged to the person making a normal UPI payment.

The exact distribution of any MDR among the participating entities would depend on the final framework. Depending on the transaction and payment arrangement, participating banks, payment service providers, networks and other payment intermediaries may have defined roles in the economics of the transaction.

For merchants, the practical issue is therefore not simply the headline MDR percentage. It is the effective cost of payment acceptance across transaction types, channels, acquiring arrangements, settlements and other payment-related services.

What MDR rates and thresholds are being discussed?

No final MDR rate has been notified. One framework reported on 7 August 2026 points to an MDR of around 0.04% for select merchants. This is a reported proposal under discussion, not an approved or operative rate. Other figures and structures have also been reported during the policy debate.

At 0.04%, the arithmetic is straightforward: the charge would be 4 paise on every ₹100, or ₹4 on a ₹10,000 transaction. These calculations describe the proposed rate only; they should not be interpreted as a current UPI charge.

The same reported framework points to an annual-turnover threshold above ₹4 crore for the merchants that could be brought into the charging structure. Again, this is a proposal under discussion, not a settled legal threshold.

Because the rate, threshold and transaction scope can change before final notification, merchants should not build budgets, pricing changes or payment-routing decisions around these figures until the official framework is published.

Which merchants could be affected?

The direction of current discussions is to protect smaller merchants while considering charges for larger businesses. The Payments Council of India has indicated that small merchants such as kirana stores would continue to be protected under the proposed approach.

For larger merchants, the eventual impact would depend on the final eligibility threshold, transaction categories, MDR rate, exemptions and implementation date. Large retailers, e-commerce businesses and other high-volume merchants should therefore focus on understanding their payment mix and effective acceptance costs rather than assuming that every UPI transaction will attract a fee.

A possible second-order effect is greater competition among acquiring institutions for large merchant volumes. If multiple acquiring relationships become commercially attractive, large merchants could have more reason to evaluate payment routing, acquiring arrangements, service levels and transaction economics.

Will consumers have to pay for UPI?

Not directly under the current proposal. The Finance Minister has said the proposed MDR applies to merchants rather than end users, and the Payments Council of India reiterated on 7 August 2026 that there is no proposal to charge consumers for UPI payments.

Person-to-person UPI transfers, such as paying a friend or splitting a bill, are not the focus of the proposed merchant MDR framework.

There is, however, an important economic caveat: a merchant-side cost can sometimes be absorbed by the merchant, reflected in overall pricing, or influence the merchant’s choice of payment methods. That does not mean consumers are being directly charged a UPI fee. It means the eventual commercial impact could vary by business and payment category.

What could UPI MDR mean for merchants?

If MDR is eventually introduced for selected merchants, payment acceptance economics could become a more important part of treasury and payments management. The impact would not be limited to the headline fee percentage.

• Payment mix: merchants may compare the cost and economics of UPI, debit cards, credit cards and other payment methods more closely.
• Transaction value: the effect of a percentage-based MDR will increase with transaction value and payment volume.
• Acquiring arrangements: large merchants may evaluate pricing and service terms across acquiring partners.
• Reconciliation and settlement: merchants may need clear transaction-level visibility into any new payment costs.
• Pricing decisions: businesses will need to decide whether any incremental cost is absorbed, managed through payment mix, or reflected indirectly in pricing.
• Payment routing: high-volume merchants may place greater value on intelligent routing, uptime, transaction success rates and cost visibility.

What should merchants do now?

There is no need for merchants to make an immediate change solely because the enabling Bill has passed the Lok Sabha. The more practical approach is to prepare for the possibility of a changed cost structure while waiting for the final legal and regulatory position.

1. Track official notifications rather than relying on early media reports about proposed rates or thresholds.
2. Review the current mix of UPI, cards and other payment methods.
3. Understand the effective cost of each payment channel, including processing, acquiring, settlement and service-related charges.
4. For larger businesses, model how different MDR scenarios could affect payment costs and margins.
5. Review payment acceptance and reconciliation processes so that any future fee can be identified and accounted for accurately.
6. Avoid changing customer-facing pricing or adding a separate UPI surcharge based on an unnotified proposal.

What happens next?

The immediate legislative step is completion of the parliamentary process. The Taxation and Other Laws (Amendment) Bill, 2026, after being passed by the Lok Sabha, still needs Rajya Sabha approval and Presidential assent.

After that, the relevant authorities would need to establish the operative framework. The UPI and Services Steering Committee, headed by NPCI, is expected to have a role in the framework discussions, while RBI and NPCI remain central to the operational payments ecosystem.

The RBI Governor, Sanjay Malhotra, said on 6 August that it was premature to comment on a specific MDR structure because discussions on the payment mechanism were still underway.

In other words, the legal door may be opening, but the final commercial model has not yet been fixed.

Frequently asked questions

Will UPI be charged now?

No. No new UPI MDR has been notified for immediate implementation. The Lok Sabha has passed enabling legislation, but the remaining legislative and regulatory steps are still pending.

What is UPI MDR?

MDR, or Merchant Discount Rate, is a merchant-side charge associated with processing a digital payment. The proposed UPI framework concerns potential charges on eligible merchants, not a direct fee on consumers.

Will customers have to pay UPI charges?

There is currently no notified consumer UPI charge under this proposal. Statements from the Finance Minister and Payments Council of India indicate that the proposed MDR is intended to apply on the merchant side.

What MDR rate is being discussed for UPI?

One reported framework under discussion points to around 0.04% for select merchants. This is not a notified rate, and other proposals have also been reported.

Will small merchants have to pay UPI MDR?

Current discussions indicate that small merchants would remain protected, but the final eligibility criteria have not been notified.

What is the proposed ₹4 crore threshold?

One current proposal points to an annual turnover threshold above ₹4 crore for merchants that could be subject to MDR. This remains under discussion and is not a final rule.

Will RuPay debit cards also be affected?

The legislative change covers electronic payment modes including UPI and RuPay debit cards within the broader statutory framework. The eventual treatment of each mode will depend on the final notifications and framework.

When will UPI MDR actually start?

There is no confirmed start date. The Bill must complete the parliamentary process and receive Presidential assent, followed by the relevant notifications and operational framework.

Conclusion

For merchants, the headline is not that UPI has suddenly become chargeable. The more accurate conclusion is that the legal framework governing zero-MDR electronic payments is being changed, creating the possibility of a future merchant-side MDR regime.

The rate, threshold, scope and timing remain unsettled. Until the final rules are notified, merchants should avoid treating proposed figures as confirmed costs. The right response is to stay informed, understand payment economics and ensure that payment acceptance, routing, settlement and reconciliation can adapt if the framework changes.

Editorial note and disclaimer

This article reflects information available as of 8 August 2026. The Taxation and Other Laws (Amendment) Bill, 2026 had been passed by the Lok Sabha but had not yet completed the Rajya Sabha and Presidential-assent stages as of the date of this article. The MDR rate, merchant threshold, transaction scope and implementation timeline discussed in this article remain subject to official notification and may change.