The Finance Ministry has moved to levy a Merchant Discount Rate (MDR) on UPI and RuPay debit transactions for merchants with annual turnover above ₹50 crore. The decision aims to offset the cost of maintaining India's digital payment infrastructure.

Key Takeaways

  • MDR to be applied on UPI & RuPay debit for large merchants (annual turnover > ₹50 crore)
  • Proposed rate: 1‑3% per transaction
  • Government subsidy scheme continues for small merchants

Background

Since January 2020, India has exempted UPI and RuPay debit card transactions from any Merchant Discount Rate (MDR) to accelerate digital payment adoption. However, the Standing Committee on Finance warned in its March 2026 report that “the absence of MDR makes the UPI ecosystem financially unsustainable.”

Now, the Ministry of Finance proposes an amendment to the Payment and Settlement Systems Act, 2007 that would allow banks and system providers to charge a 1‑3% MDR on payments made by merchants with a turnover exceeding ₹50 crore, such as Amazon and Flipkart. The change will be effected through the Taxation and Other Laws (Amendment) Bill, 2026, which seeks to remove the exemption under Section 269SU of the Income‑Tax Act.

Previously, the government subsidised low‑value BHIM‑UPI and RuPay debit transactions for small merchants up to ₹2,000 per transaction (capped at 0.15% of the value). The subsidy payout reached ₹2,196.21 crore in FY 2025‑26, up from ₹1,922.77 crore in FY 2024‑25.

Why This Matters

BozokMedia analysis shows that the introduction of MDR on high‑volume merchants could generate an estimated ₹10,000‑₹12,000 crore annual revenue for banks, while potentially increasing transaction costs for e‑commerce platforms and, ultimately, consumers.

“Reinstating MDR is a necessary step to share the infrastructure burden, but it must be calibrated to avoid stifling digital commerce.” – Dr. Anjali Singh, Financial Policy Expert
Did You Know?: In 2023‑24, only 33% of large merchants paid any fee on digital payments, while small merchants benefited from government subsidies.

Frequently Asked Questions

  • Will small merchants still receive the subsidy? Yes, the 0.15% subsidy will continue for small and medium‑size merchants.
  • What will be the exact MDR rate? The proposed range is 1% to 3% per transaction, depending on the transaction type and amount.