The Indian government has set a Rs 2,000 threshold for Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions, as per a Gazette notification dated September 14. Transactions up to Rs 2,000 on UPI and RuPay debit cards will remain free of MDR, while payments above this amount may incur charges, according to medianama.com.
This move follows the Taxation and Other Laws (Amendment) Act, 2026, which amended Section 10A of the Payment and Settlement Systems Act (PSSA) in August. The amendment replaced the previous blanket MDR exemption with a framework allowing the government to specify protected payment modes through notifications. The Finance Ministry used this power to define the Rs 2,000 limit, ensuring banks and system providers cannot levy charges on transactions below this threshold. The National Payments Corporation of India (NPCI)-led UPI and Services Steering Committee will decide if MDR applies above Rs 2,000 and set the applicable rates.
The reintroduction of MDR on higher-value UPI transactions marks a shift from the zero-fee model that has been in place since January 2020. Earlier, Section 10A of the PSSA barred charges on electronic payments prescribed under Section 269SU of the Income-tax Act, 1961, which included UPI and RuPay payments. The amendment and subsequent notification allow for MDR charges on transactions exceeding Rs 2,000, potentially impacting merchants and payment service providers. This change aligns with efforts to balance digital payment growth with sustainability of payment infrastructure.
The notification does not specify MDR rates or implementation timelines. The NPCI-led UPI and Services Steering Committee is tasked with finalizing the MDR framework and rates for transactions above Rs 2,000, as stated in the Gazette notification published on September 14.