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UPI to Remain Free for Users: Government Clarifies Merchant Fee Policy

The Ministry of Finance has clarified that Unified Payments Interface (UPI) transactions will remain free of cost for ordinary users, confirming that all Person-to-Person (P2P) transfers will face no charges. The statement comes after the Lok Sabha cleared a legislative amendment that allows banks to charge merchants a fee, raising questions among consumers regarding potential transaction costs.

What Happened

Following concerns that recent legislative developments could lead to fees on everyday digital payments, the government stated that the vast majority of merchant transactions will continue to be free. The amendment under the Payment and Settlement Systems Act (PSS Act) serves as an enabling provision rather than an immediate or universal fee on consumers.

According to the Ministry of Finance, if a Merchant Discount Rate (MDR) is introduced in the future, it will be strictly threshold-based, applying only to a specific category of merchant transactions above a defined value. Reports indicate the government may allow payment service providers and banks to levy an MDR of 0.25% to 0.4% solely on business payments exceeding Rs 2,000. Routine payments such as groceries, milk, vegetables, taxi rides, and auto-rickshaw fares are not expected to face any levies.

Key Highlights

  • No Charges for Consumers: All person-to-person (P2P) payments will remain entirely free for users.
  • Threshold-Based Merchant Fees: Any prospective MDR will be nominal—significantly lower than debit and credit card rates—and limited to specific business transactions above a designated threshold.
  • Daily Payments Untouched: Routine payments for essentials like groceries and local transport are excluded from potential charges.
  • Strengthening Digital Infrastructure: The policy aims to support cybersecurity, fraud prevention, and technological resilience as transaction volumes scale.
  • Rejection of External Influence: The government dismissed claims that policy changes were driven by outside pressure, calling such assertions false and unfounded.
  • Scale of Operations: UPI processed 2,366 crore transactions valued at Rs 29.9 lakh crore in July 2026 and operates across 11 countries.

Why This Matters

The government explained that relying solely on subsidies is insufficient to sustain the next phase of digital payment growth. Continuous investments are required to maintain robust infrastructure, prevent fraud, and upgrade cybersecurity systems. Establishing a sustainable revenue model is also intended to foster competition by encouraging more companies to participate in the ecosystem, particularly as digital payments expand into rural and semi-urban regions.

Addressing the amendment to Section 10A of the Payment and Settlement Systems Act, 2007, under the Taxation and Other Laws (Amendment) Bill, 2026, the government highlighted that the ecosystem must become financially self-sustaining without burdening ordinary citizens.

What to Watch Next

Any decision regarding whether an MDR should be levied will be evaluated by the “UPI and Services Steering Committee,” chaired by the National Payments Corporation of India (NPCI), only after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026.

Reserve Bank of India Governor Sanjay Malhotra noted that it is premature to comment on specific merchant fee implementations, stating that the immediate regulatory focus remains on strengthening payment efficiency and infrastructure.

Frequently Asked Questions

Will consumers have to pay charges for making UPI transfers?

No. The Ministry of Finance has clarified that all person-to-person (P2P) transactions and everyday consumer payments will continue to remain completely free.

Will small merchants and daily purchases be affected by MDR?

No. The government stated that the vast majority of merchant transactions will remain free. Routine payments for items like milk, vegetables, groceries, and transit fares are not expected to be subject to any charges.

What is the proposed rate if MDR is applied to merchant payments?

Reports indicate that an MDR ranging from 0.25% to 0.4% could be permitted on merchant transactions exceeding Rs 2,000, which is significantly lower than the fees applicable to debit and credit card payments.

Source: timesofindia.indiatimes.com