The Finance Ministry has reportedly proposed a key legislative change that could pave the way for reintroducing MDR on UPI transactions for large merchants, marking the first formal step toward building a sustainable revenue model for India's rapidly growing digital payments ecosystem.
Key Highlights
- Finance Ministry proposes amending law to allow MDR on UPI transactions for large merchants, not consumers.
- Parliamentary panel called zero-MDR framework unsustainable, as UPI processes over 23 billion transactions worth Rs 30 lakh crore monthly.
According to reports, as part of proposed amendments to the Payment and Settlement Systems Act, 2007, the government intends to remove provisions that currently prevent banks and payment system providers from levying MDR on notified electronic payment modes. Once Parliament approves the amendment, the Centre would be empowered to issue a notification specifying which transactions can attract MDR charges.
Importantly, the proposal does not envisage any fee for consumers using UPI. If introduced, the MDR burden is expected to apply only to merchants, not individual users of the platform.
Six Years After MDR Was Scrapped to Boost Digital Payments
The move comes more than six years after the government abolished MDR on UPI and RuPay debit card transactions from January 2020, a step that was aimed at accelerating the adoption of digital payments across the country.
That policy proved highly effective, driving unprecedented growth in digital transactions. UPI now accounts for nearly 88% of all digital payments in India, with the platform currently processing more than 23 billion transactions worth close to Rs 30 lakh crore every month.
Parliamentary Panel Flags Zero-MDR Model as Unsustainable
The proposal also aligns with concerns raised by the Parliamentary Standing Committee on Finance, which in its March 2026 report described the zero-MDR framework as financially unsustainable over the long term.
While acknowledging that the zero-MDR policy played a crucial role in making digital payments affordable and expanding financial inclusion, the committee noted that the absence of a viable revenue stream has limited banks and payment service providers from investing adequately in innovation, cybersecurity and infrastructure - investments seen as essential to support the next phase of UPI's growth.
Also Read: Govt Mulls Sub-0.5% MDR on UPI Payments Above Rs 2,000
Panel Projects UPI Could Grow Tenfold in Coming Years
According to NPCI Data, UPI Hit 23.66 billion transaction in June. The committee highlighted that UPI has the potential to expand nearly tenfold in the coming years, supported by India's favourable demographics, sustained economic growth and wider geographic penetration.
It projected that the platform could add another 600 million users and eventually process between 100 and 150 billion transactions every month. However, it cautioned that supporting growth at this scale would require continuous investment in technology, system resilience and merchant acceptance infrastructure - investments that cannot depend indefinitely on government incentives alone.
The committee recommended that policymakers work toward developing a sustainable funding mechanism, one that balances continued affordability for users with the long-term financial viability of ecosystem participants such as banks and payment service providers.
