UPI Free For Citizens, Merchants May Face ‘Nominal’ Fee: Govt, Pg1

Key Highlights:

• The Ministry of Finance clarified that consumers will not face transaction charges for Unified Payments Interface (UPI) payments, with person-to-person transactions remaining free.
• Merchant Discount Rate (MDR), if introduced, will be nominal, apply only above a certain threshold, and on a limited set of merchant transactions, significantly lower than debit or credit card MDRs.
• This clarification follows the introduction of The Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to the Payment and Settlement Systems Act, 2007.
• The government aims for UPI to be self-sustainable and affordable for future growth, moving beyond sole reliance on subsidies.

UPI Free_.png

Detailed Insights:

• The Taxation and Other Laws (Amendment) Bill, 2026, passed by the Lok Sabha, seeks to amend Section 10A of the Payment and Settlement Systems Act, 2007.
• This amendment removes the exemption from bank charges for electronic payments prescribed under Section 269SU of the Income-tax Act, 1961.
• Section 269SU applies to businesses with an annual turnover exceeding Rs 50 crore, which may define the threshold for MDR applicability.
• The cost of maintaining the UPI ecosystem is estimated at Rs 20,000 crore annually, currently borne by banks and financial system players.
• India's UPI processed over 24,000 crore transactions in 2025-26, making it the world’s largest real-time payment system.
• The government currently subsidizes low-value UPI payments to small merchants through the Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M).
• The U.S. Trade Representative (USTR) has previously criticized UPI and RuPay for being free, alleging they favor domestic suppliers over foreign payment platforms.
• A 30% market share cap for third-party UPI apps, initially set for January 2023, has been deferred multiple times, with the current deadline being December 2026.

Key Concepts Involved:

• Unified Payments Interface (UPI): An instant real-time payment system developed by National Payments Corporation of India (NPCI) for inter-bank peer-to-peer and person-to-merchant transactions.
• Merchant Discount Rate (MDR): A fee paid by a merchant to their bank for processing debit or credit card transactions, covering costs like transaction processing and infrastructure.
• Payment and Settlement Systems Act, 2007: An Act of the Parliament of India that provides for the regulation and supervision of payment systems in India.