Quick Take
- UPI stays free for all consumers and person-to-person transfers, the Finance Ministry confirmed on August 8, 2026.
- Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026, on August 6, amending Section 10A.
- Any future MDR applies only to large merchants above a threshold, at a nominal rate below card fees.
In This Article
UPI stays free for consumers, the Ministry of Finance clarified on August 8, 2026, two days after the Lok Sabha passed a bill that removes the legal ban on charging for the payment system.
The Taxation and Other Laws (Amendment) Bill, 2026, amends Section 10A of the Payment and Settlement Systems Act, 2007. It does not set any fee. It only gives the Central Government the power to allow a Merchant Discount Rate (MDR), a fee merchants pay banks, on select transactions later, according to the government’s official communication.
StartupFeed Insight
The real signal here is not the fee, it is the timing. UPI processed Rs 29.9 Lakh Crore across 2,366 Crore transactions in July 2026 alone, per the Finance Ministry, and the state cannot subsidise that scale forever. Watch large aggregators and PoS-heavy chains, they will price any MDR into checkout systems first. StartupFeed expects the NPCI-led steering committee to notify a threshold-based MDR, likely near 0.25% to 0.40% on business transactions above Rs 2,000, within six to nine months of the Bill clearing the Rajya Sabha. Small kirana stores stay protected, but fintech margins will shift. By Avinash.
MDR Bill Breakdown: Key Facts
The Bill is an enabling provision, not a fee order. It removes the zero-MDR protection UPI has held since January 2020 and hands the pricing decision to the government and NPCI.
| Detail | What It Says | Notes |
|---|---|---|
| Bill Name | Taxation and Other Laws (Amendment) Bill, 2026 | Moved by FM Nirmala Sitharaman |
| Law Amended | Section 10A, Payment and Settlement Systems Act, 2007 | Removes zero-MDR bar |
| Lok Sabha Passage | August 6, 2026 | Voice vote amid protests |
| Consumer Impact | No charges on any payment | P2P transfers stay free |
| Merchant Impact | Nominal MDR only above a threshold | Lower than card MDR |
| Who Decides Rate | UPI and Services Steering Committee | Headed by NPCI |
The most important line: the Bill fixes no rate, no threshold, and no start date. Those come later, only after the full law is in force.
About the Payment and Settlement Systems Act
The Payment and Settlement Systems Act, 2007, is the law that governs digital payments in India. It is administered by the Reserve Bank of India (RBI). Section 10A, added to promote cashless payments, has since January 2020 barred banks from charging any fee on UPI and RuPay debit cards. The National Payments Corporation of India (NPCI), a not-for-profit body, runs UPI itself and reports its monthly transaction data.
Will UPI stays free hold for merchants?
For most merchants, yes. The Finance Ministry said the vast majority of merchant transactions will stay free, and any MDR would be threshold-based rather than a blanket levy. Only large merchants above a turnover or transaction threshold would pay.
There are costs and these costs have to be paid by someone. Who pays is important but not so important than someone footing the bill, RBI Governor Sanjay Malhotra said this week.
Last year, the Payments Council of India (PCI) proposed a 0.3% MDR on UPI for large merchants only, well below card rates. About 90% of India’s roughly 60 million payment-accepting merchants are small, with turnover under Rs 20 Lakh a year, so most fall outside any likely threshold.
Why does the government want an MDR now?
The government’s case is sustainability. It argues UPI cannot run on subsidies forever as volumes explode and the system needs constant spending on cybersecurity, fraud prevention, and infrastructure.
The scale is the argument. UPI handled Rs 29.9 Lakh Crore ($31.4 Bn is far smaller; the figure is Rs 29.9 Lakh Crore, about $314 Bn at Rs 95.24 to the dollar) across 2,366 Crore transactions in July 2026, per the Finance Ministry. The system is now live in 11 foreign countries. The government said reliance on subsidies alone is not viable for the next wave of growth, and rejected reports that outside pressure drove the change as false and misleading. A nominal MDR on the largest merchants, it argues, funds the network without touching consumers.
How does UPI MDR compare to card fees?
Even a future UPI MDR would sit far below card charges. Debit and credit card MDR runs much higher, which is why the proposed UPI rate is pitched as nominal.
| Payment Mode | Typical MDR | Who Pays Now |
|---|---|---|
| UPI (current) | 0% | No one, since Jan 2020 |
| UPI (proposed) | Around 0.3%, large merchants only | Large merchants, if notified |
| Debit cards | Up to 0.90% | Merchants |
| Credit cards | Around 1% to 2% | Merchants |
What makes UPI different is reach and cost. No rival network moves this volume at zero cost to users, which is exactly why any fee is being kept small and narrow.
What’s Next
The Bill still needs Rajya Sabha passage and Presidential assent before it becomes law. Only then can the NPCI-led steering committee decide whether to notify an MDR, and set the rate and threshold. Watch for that committee’s first meeting in the weeks after the law clears. Will a nominal fee on big merchants keep UPI free for the rest of us, or open the door wider over time?
Frequently Asked Questions
Disclaimer: This article is for informational purposes only and does not constitute investment advice. StartupFeed and its authors are not SEBI-registered investment advisors. The analysis above is based on publicly available information and should not be the sole basis for any investment decision. Please consult a SEBI-registered financial advisor before making investment decisions.
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