Consumers & small merchants will not have to pay any charges on UPI transactions, says FM Sitharaman
The Taxation and Other Laws (Amendment) Bill, 2026 proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007
The amendment replaces the existing blanket ban on Merchant Discount Rate (MDR) for prescribed electronic payment modes with an enabling provision, under which the central government can notify by executive order which payment modes remain exempt from MDR
The Finance Ministry clarified in Parliament that consumers and small merchants will continue to pay no charges on UPI transactions, and that any future MDR would apply only to a limited category of higher-value merchant transactions
If implemented, any such MDR is expected to be nominal and significantly lower than the MDR applicable to debit or credit card transactions
UPI processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone
Section 10A of the Payment and Settlement Systems Act, 2007
Section 10A was inserted into the Payment and Settlement Systems Act, 2007 with effect from November 1, 2019. It provides that no bank or system provider shall impose any charge on a payer or beneficiary transacting through the electronic modes prescribed under Section 269SU of the Income-tax Act, 1961 — effectively mandating zero MDR on those modes. The 2026 amendment converts this blanket statutory prohibition into an enabling clause, shifting the power to define which modes are MDR-exempt from the statute itself to government notification.
Key Details
- Section 10A inserted via the Finance (No. 2) Act, 2019; effective November 1, 2019
- Read together with Section 269SU of the Income-tax Act, 1961, inserted by the same Finance Act
- Section 269SU requires businesses with turnover above ₹50 crore to mandatorily offer prescribed electronic payment modes
- Zero-MDR on UPI and RuPay debit card transactions has applied since January 1, 2020
- The Payment and Settlement Systems Act, 2007 is the parent statute empowering the RBI to regulate and supervise payment systems in India
The amendment does not itself impose MDR on UPI; it removes the statutory blanket exemption and replaces it with an executive power to define exemptions, which is why the government has had to publicly assure that consumer and small-merchant UPI use will remain free.
National Payments Corporation of India (NPCI) and UPI
NPCI is the umbrella organisation for retail payment systems in India, incorporated in 2008 under the provisions of the Payment and Settlement Systems Act, 2007, with the guidance of the RBI and the Indian Banks' Association. It operates the Unified Payments Interface (UPI), launched in April 2016, along with IMPS, RuPay, FASTag, Bharat BillPay, and Aadhaar-enabled payment systems.
Key Details
- NPCI incorporated: 2008, under the Payment and Settlement Systems Act, 2007
- UPI launched: April 2016
- UPI enables real-time, 24x7 interbank transfers via a single mobile application/QR interface
- NPCI also operates RuPay, India's domestic card payment network, launched in 2012
NPCI-operated UPI and RuPay debit are the two payment rails most directly affected by the zero-MDR provision under Section 10A, making any change to that section a direct policy signal for NPCI's revenue model and merchant onboarding strategy.
Merchant Discount Rate (MDR) — Concept and Regulatory History
MDR is the fee a merchant pays to their bank (and, indirectly, to the card/payment network and the customer's issuing bank) for accepting a digital payment. It is typically expressed as a percentage of the transaction value and is shared among the acquiring bank, issuing bank, and payment network under an "interchange" arrangement. For UPI and RuPay debit, MDR was set to zero by regulation from January 2020 to promote adoption of low-cost digital payments, with the government instead reimbursing banks/NPCI via a separate incentive scheme funded through the Union Budget.
Key Details
- MDR components (in card transactions): interchange fee (to issuing bank), network fee (to card network), acquirer margin
- Zero-MDR on UPI/RuPay debit in force since January 1, 2020, under Section 10A read with Section 269SU
- Government has separately funded an incentive scheme to compensate banks/NPCI for zero-MDR UPI transactions since FY 2021-22
- Small-value/person-to-merchant transactions are the largest share of UPI volume, which the government has committed to keeping free
The proposed shift to notification-based MDR exemption creates room for a differentiated MDR structure — for instance, applying charges only above a transaction-value threshold — while preserving the zero-charge promise for the bulk of small-ticket UPI usage that the incentive scheme was designed to support.
- Section 10A of the Payment and Settlement Systems Act, 2007: in force since November 1, 2019
- Section 269SU of the Income-tax Act, 1961: applies to businesses with turnover above ₹50 crore
- Zero-MDR on UPI and RuPay debit: in effect since January 1, 2020
- NPCI incorporated in 2008 under the Payment and Settlement Systems Act, 2007
- UPI launched: April 2016
- UPI transactions in July 2026: 2,366 crore transactions worth ₹29.9 lakh crore