The Finance Ministry has officially allowed Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000. This ends the three-year zero-MDR policy, shifting how high-value digital payments generate revenue. Acquiring banks and payment apps like PhonePe and Paytm will now get a direct cut from these transactions.
How We Got Here
The zero-MDR regime was put in place in 2020 to rapidly accelerate India's digital payments adoption. That policy previously barred any charges on UPI, but the recent Taxation And Other Laws (Amendment) Bill, 2026, cleared the legal path for this change.
The Numbers
- RuPay-powered debit cards are also exempt from MDR, along with UPI transactions under ₹2,000.
- The UPI and Services Steering Committee, headed by NPCI, will finalize the exact MDR framework and rates.
- Reports suggest a potential charge of 40 basis points (0.4%) on transactions above the ₹2,000 threshold.
- Issuing banks could receive 40% of the MDR, with the rest split between third-party app providers (TPAPs) and acquiring banks.
What Happens Next
🇮🇳 Why This Matters for India
For small kirana store owners in Tier-2 cities like Nashik or Lucknow, this adds a new operational cost to their highest-value digital sales.
The Take
The clear winners are the banks and large payment apps who gain a direct revenue stream. The subtle losers are small merchants, who now face new costs on high-value digital transactions or have to nudge customers to cash.
Source:
Inc42 ↗