Amid the ongoing chatter over charges on UPI transactions, the government on Saturday categorically stated that consumers and small merchants will continue to enjoy free Unified Payments Interface (UPI) services following the passage of a Bill to amend the Payment and Settlement Systems Act, 2007.
However, the Centre stated that a nominal Merchant Discount Rate (MDR) for merchants will be applicable as and when charges are introduced.
“They will apply only to a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs,” the Finance Ministry said in a statement.
The statement comes two days after the Lok Sabha passed a Bill to amend the Payment and Settlement Systems Act, 2007, which allows the government to permit banks and other service providers to levy charges on payments through UPI and other notified electronic payment modes.
“Once the Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, which proposes to amend Section 10A of the Payment and Settlement Systems Act, 2007, the ‘UPI and Services Steering Committee’ headed by NPCI will decide on the MDR, if any,” it said.
What Is The Debate Around UPI?
After the recent amendment to the Payment and Settlement Systems Act (PSS Act), a debate started with some misinterpreting the Centre’s decision as a move to impose charges on ordinary users. However, in reality, the amendment is an enabling provision designed to ensure UPI’s long-term sustainability, technological advancement, and resilience against emerging risks.
Explaining the rationale, the statement said, with exponential transaction volumes, the system requires significant and continuous upgrades in cybersecurity, fraud prevention, and infrastructure. The statement further said that it was required for market expansion and self-sustainability.
Addressing concerns on narratives like external influences may be driving policy changes, the statement said, this is unfounded, completely false and misleading. If external pressure had been a factor, the government would not have introduced UPI in 2016 or made it free of charge for both merchants as well as citizens since January 2020 and ensured that it became the world’s largest real-time interoperable payment system, it said.
(With agency inputs)
