The Government Has Introduced a Bill in the Lok Sabha That Could Lead to Merchant Discount Rate Charges on UPI and Other Digital Payment

Finance Minister Nirmala Sitharaman tabled the Taxation and Other Laws (Amendment) Bill on Tuesday, which amends the Payment and Settlement Systems Act, 2007, to allow the Centre to notify which electronic payment instruments, payer categories, and thresholds would be exempt from MDR. Sources said the Finance Ministry would issue a negative list of exempted modes, potentially including UPI, once the bill becomes law. MDR is a fee merchants pay to banks and payment processors for handling digital transactions; credit cards typically attract about 1.5 per cent, debit cards up to 0.9 per cent, while UPI is currently free for merchants.

The government is reportedly weighing two monetisation options for UPI: capping free transactions and charging MDR above a threshold, or levying fees based on annual merchant turnover, though sources declined to confirm these proposals. UPI processes nearly 23 billion interoperable transactions monthly, and growth is slowing after six years of near-zero investment, with potential to triple penetration among consumers and merchants. Amrish Rau, CEO of Pine Labs, said in a social media post that reaching 90 per cent penetration and taking UPI global requires continued investment in IT, innovation, and cybersecurity, with costs up nearly 300 per cent over the past 12–24 months, but peer-to-peer transactions and consumer charges should remain zero. no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using one or more electronic modes of payment as may be notified by the Central Government.