India is considering reintroducing charges on some UPI and RuPay debit card transactions as part of a shift away from its zero merchant discount rate policy, raising questions about the future funding of the country’s vast digital payment infrastructure.
India is moving closer to allowing charges on some UPI and RuPay debit card payments, in a shift that would mark the end of the zero merchant discount rate policy introduced in 2020 to accelerate digital adoption. The Indian Express said last week’s passage of the Taxation and Other Laws (Amendment) Bill, 2026, in the Lok Sabha creates legal room for such fees under changes to the Payment and Settlement Systems Act, 2007. The policy debate is now no longer about whether digital payments are successful, but about how to pay for the infrastructure that keeps them running.
That question matters because UPI has become a vast public payments rail. In July alone, 23.6 billion transactions moved through the platform, according to the figures cited in the editorial. Yet the cost of processing those payments is far greater than the public support currently on offer. The paper pointed to the 32nd report of the Standing Committee on Finance, which said the absence of MDR leaves the UPI ecosystem financially unsustainable. It also noted that between 2021-22 and 2024-25 the Union government provided Rs 8,730 crore in incentives, covering only a small share of industry costs.
The banking industry has already pressed for a return of merchant charges on UPI for large businesses, according to the Economic Times, and the government is said to be considering the request positively. Times of India reported that fintech companies argue big merchants can absorb the cost and that existing subsidies do not fully support the system. The Finance Ministry, however, has indicated that any future MDR would apply only above a threshold and to a limited set of merchant transactions, which would mean most users would not face direct charges.
That distinction is important because person-to-merchant payments account for most UPI activity by volume, but a far smaller share of value. The Indian Express said P2M transactions made up 63 per cent of total volumes in the first half of 2025, yet only 29 per cent of value. It added that just 4 per cent of P2M transactions in 2025-26 were above Rs 2,000, but they represented two-thirds of P2M value, suggesting a higher threshold could still generate revenue without affecting routine small-value payments. The paper also noted that credit card MDR typically ranges from 1 per cent to 3 per cent, while debit card MDR can be as high as 0.9 per cent, underscoring how unusual zero-fee processing has been in India’s payments market.
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