Why in News?
On 8 August 2026, the Ministry of Finance clarified that UPI users will continue to make payments without transaction charges. The clarification came amid concerns over a proposed amendment to Section 10A of the Payment and Settlement Systems Act, 2007, under the Taxation and Other Laws (Amendment) Bill, 2026, which could allow charges on certain merchant UPI transactions. The government stated that P2P payments and most merchant transactions will remain free.
Importance
- Supports Digital Payments: Keeping UPI free encourages wider use of digital payments across the country.
- Helps Small Businesses: Street vendors, small traders and local businesses can continue accepting digital payments without additional costs on most transactions.
- Promotes Financial Inclusion: Free and easy digital payments help bring more people into the formal financial system.
- Protects UPI Adoption: The move helps maintain UPI as a low-cost and convenient payment system.
- Boosts Digital Economy: Continued widespread use of UPI strengthens India's digital payments ecosystem and supports the broader Digital India vision.
Key Highlights
- No User Charges: Person-to-person UPI payments will remain free for users.
- Merchant Payments: Most UPI merchant transactions will continue to remain free.
- MDR: If introduced in the future, MDR would apply only to a limited category of merchant transactions above a specified threshold.
- Nominal Rate: Any such MDR would be kept at a nominal rate, lower than typical debit and credit card MDRs.
What is MDR?
Merchant Discount Rate (MDR) is a fee charged to a merchant on certain digital payment transactions. It is generally shared among participants involved in processing the payment.
Significance
UPI has become a major part of India's digital payments ecosystem because of its low-cost and convenient nature. Keeping most transactions free can help support small businesses, digital payment adoption and financial inclusion.
