The Indian government is reportedly considering reintroducing merchant discount rates (MDR) on UPI and RuPay debit card transactions, specifically for larger businesses. Currently, these transactions are free of charge for merchants, as the government had waived MDR to encourage digital payments. However, banks and financial institutions are now pushing for its return, arguing that the increasing volume of transactions has placed a financial burden on them.
If the government goes ahead with this move, businesses exceeding a certain turnover limit will have to pay a small percentage of each transaction as a fee to banks. While smaller merchants and individuals may continue to enjoy free UPI payments, larger businesses could see new charges added to their digital transactions.
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Why is the Govt Considering MDR on UPI and RuPay?
- Request from the Banking Sector
- Banks and payment service providers have formally requested the government to reinstate MDR for merchants with an annual turnover of over ₹40 lakh (based on GST filings).
- They argue that processing UPI and RuPay transactions incurs costs, and without MDR, maintaining this system is becoming financially challenging.
- Increasing Digital Transactions
- In February 2025 alone, UPI recorded 16.11 billion transactions, totaling nearly ₹22 trillion.
- The high volume of transactions is making it harder for banks to offer these services for free without any revenue from MDR.
- A More Balanced Approach
- Before MDR was scrapped in the FY22 Budget, merchants were charged a fee below 1% of the transaction amount.
- Many experts believe that completely waiving MDR was not necessary for large businesses, as they already pay similar fees for Visa and Mastercard transactions.
- The government is now exploring a tiered pricing model, where larger merchants will pay MDR, while small businesses and individual users remain unaffected.
What Could This Mean for Businesses and Consumers?
- For Small Businesses & Consumers:
- No major impact expected. UPI and RuPay transactions for small merchants are likely to remain free.
- Individual users can continue making payments via UPI without any charges.
- For Large Businesses:
- Companies with over ₹40 lakh in turnover may have to pay MDR on UPI and RuPay transactions.
- The exact percentage of MDR has not been announced yet, but it is likely to be less than 1% of the transaction amount.
- This could lead to higher costs for businesses, which may eventually be passed on to customers through higher product prices.
- For Banks and Payment Service Providers:
- If MDR is reinstated, banks will earn revenue from processing UPI and RuPay transactions, making the system more sustainable.
- It could also encourage better infrastructure, security, and innovation in digital payments.
Frequently Asked Questions (FAQs)
1. What is MDR, and why does it matter?
MDR (Merchant Discount Rate) is a fee that merchants pay to banks for processing digital transactions. It helps banks cover transaction costs and maintain the payment infrastructure.
2. Who will have to pay MDR if it’s reinstated?
According to reports, only businesses with an annual turnover above ₹40 lakh (as per GST filings) will be required to pay MDR on UPI and RuPay transactions.
3. Will UPI transactions remain free for small businesses and individuals?
Yes, small businesses and individuals are expected to continue enjoying free UPI payments. The charges will likely apply only to larger merchants.
4. How much will MDR be if the government reinstates it?
While the exact MDR percentage is not confirmed, it is expected to be below 1% of the transaction amount, similar to pre-2022 levels.
5. How will this impact digital payments in India?
- For consumers, nothing will change—UPI will still be free for personal transactions.
- For large businesses, costs may increase, which could lead to slight price hikes for products and services.
- For banks, MDR will provide revenue, helping them invest in better payment infrastructure.
6. When will the government decide on this?
As of now, the government has not made a final decision. Discussions are ongoing, and an official announcement is expected in the coming months.
Final Thoughts
The possible return of MDR on UPI and RuPay transactions for large businesses is a big development in India’s digital payments landscape. While small merchants and individual users are likely to remain unaffected, businesses with higher turnovers may need to adjust to these charges.
With the growing popularity of UPI, balancing costs for banks and accessibility for users will be key. The government’s final decision will shape the future of digital payments in India, so stay tuned for further updates.
