Free UPI transfers may not stay free forever for everyone. The Finance Ministry has introduced the Payment and Settlement Systems (Amendment) Bill, 2027, in Parliament, opening the door for a possible return of the Merchant Discount Rate (MDR) on select UPI payments — but before anyone panics, here’s what’s actually on the table.
What Is MDR, and Who Would Actually Pay It?
MDR is a fee paid by businesses to banks and payment service providers for processing digital transactions, so any charge would apply to merchants, not consumers using UPI. In other words, regular person-to-person transfers — splitting rent, sending money to family — are expected to stay completely free.
Proposed UPI MDR
| Detail | What’s Being Considered |
|---|---|
| Threshold | Transactions above ₹2,000 |
| Who Pays | Merchants, not consumers |
| Likely Target | Large merchants/commercial establishments |
| Proposed Rate | 0.25%–0.4% (25–30 basis points) |
| P2P Transfers | Expected to remain fully exempt |
| Timeline | Not yet decided |
Officials noted that the ₹2,000 threshold would cover about 5% of all UPI transactions by volume but account for around 65% of the total transaction value. Meanwhile, routine purchases such as milk, vegetables, groceries, and payments for autorickshaw and taxi rides are unlikely to be affected, since these typically fall under the threshold.
Why Now?
A source explained the plan was always in the works, but wasn’t pushed earlier since the priority was expanding UPI adoption over the last five to six years — which has now grown significantly enough to support a viable revenue mechanism for the Finance Ministry Officials are still finalizing exactly what counts as a “large” merchant for the new threshold.
Importantly, the Bill itself doesn’t fix any MDR rate — any actual levy would need legislative approval, a Gazette notification, and detailed RBI guidelines before it takes effect. This marks the first potential policy reversal since January 2020, when MDR was scrapped on UPI and RuPay debit transactions entirely to drive digital adoption.
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