Parliament cleared "The Taxation and Other Laws (Amendment) Bill, 2026", legally enabling a Merchant Discount Rate (MDR) on UPI transactions. This marks a fundamental shift, setting the stage for India to move past its decade-long "free UPI" policy. The decision now shifts to the NPCI-led Steering Committee, which will define who pays what and when.
How We Got Here
The Taxation Bill amends Section 10A of the Payment and Settlement Systems Act (PSSA), 2007. This replaces the previous blanket ban on transaction charges with an enabling provision for the Centre to specify chargeable electronic payment modes.
The Numbers
- FM Nirmala Sitharaman confirmed that end-customers will not bear a separate charge on UPI transactions.
- The UPI and Services Steering Committee, headed by NPCI, will decide on the introduction, scope, and structure of any MDR.
- Inc42 previously reported a potential MDR of 0.05% to 0.07% on UPI transactions above ₹2,000 for larger merchants.
- P2P transactions are expected to remain exempt from any MDR framework, as clarified by the finance ministry.
- RBI Governor Sanjay Malhotra recently stated that MDR talks are "premature", but someone will "ultimately pay" for transactions.
What Happens Next
🇮🇳 Why This Matters for India
For over 8 crore small retail merchants in cities like Nashik and Kochi, any new MDR could directly impact their 1-2% net margins on daily transactions.
The Take
The government’s reassurance about "no MDR for customers" is clever framing; the real impact will be on merchant P&Ls. This sets up a tough negotiation between payment aggregators, banks, and larger merchants, who will ultimately absorb the nominal transaction cost.
Source:
Inc42 ↗