{"id":118121,"date":"2026-08-09T10:41:56","date_gmt":"2026-08-09T05:11:56","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=118121"},"modified":"2026-08-09T12:47:00","modified_gmt":"2026-08-09T07:17:00","slug":"upi-fee-debate","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/upi-fee-debate\/","title":{"rendered":"UPI Fee Debate: What Is Changing, Who Pays MDR and Will UPI Remain Free?"},"content":{"rendered":"<h2><b>UPI Fee Debate Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Lok Sabha passed the <\/span><b>Taxation and Other Laws (Amendment) Bill, 2026<\/b><span style=\"font-weight: 400;\"> recently, opening the door for banks and payment system providers to charge fees on UPI and RuPay debit card transactions.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This sparked fears that merchants would pass the cost on to consumers. Responding to the controversy, the Finance Ministry &#8220;categorically&#8221; clarified that <\/span><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/unified-payments-interface-upi\/\" target=\"_blank\"><b>UPI<\/b><\/a><b> will remain free for citizens<\/b><span style=\"font-weight: 400;\">, with only a nominal fee possibly applying to certain merchants.<\/span><\/li>\n<\/ul>\n<h2><b>About Merchant Discount Rate (MDR)<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Merchant Discount Rate (MDR) is a fee merchants pay banks and payment processors for using their networks.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It has four components:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Interchange fee<\/b><span style=\"font-weight: 400;\"> \u2014 paid to the card-issuing bank<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Processing charges<\/b><span style=\"font-weight: 400;\"> \u2014 paid to payment gateways (RazorPay, PayU, CCAvenue, etc.)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Network fee<\/b><span style=\"font-weight: 400;\"> \u2014 paid to payment networks (Visa, Mastercard, NPCI)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Tax <\/b><span style=\"font-weight: 400;\">\u2014 GST paid to the government<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Since 2020, the government has mandated zero MDR on UPI and RuPay debit card transactions.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Other payment modes, however, do attract MDR:\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">0.4-0.9% on non-RuPay debit cards,\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">1.5-2.2% on domestic credit cards,\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">1-1.5% on netbanking, and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">3-4.5% on international credit cards.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>Who Pays for UPI Today?<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Currently:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Banks and payment processors absorb part of the cost.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Taxpayers bear the rest through government subsidy.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Under the <\/span><b>&#8216;Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions<\/b><span style=\"font-weight: 400;\"> (P2M)&#8217;, launched in December 2021, the government subsidises UPI transactions below \u20b92,000.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This subsidy is capped at <\/span><b>0.15% of transaction value<\/b><span style=\"font-weight: 400;\"> and shared among banks, payment service providers, and third-party apps.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The government paid \u20b91,389 crore in 2021-22, rising to \u20b93,631 crore by 2023-24, but this has since fallen, with only \u20b92,000 crore budgeted for 2026-27.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Notably, from 2021-22 to 2024-25, the total subsidy of \u20b98,730 crore covered just 11% of the actual cost incurred by the payments industry, as per the Standing Committee on Finance.<\/span><\/li>\n<\/ul>\n<h2><b>What the New Bill Changes<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>Payment and Settlement Systems Act, 2007<\/b><span style=\"font-weight: 400;\"> currently bars banks from charging for payments made via modes listed under Section <\/span><b>269SU of the Income Tax Act, 1961<\/b><span style=\"font-weight: 400;\"> \u2014 which includes RuPay debit cards, UPI, and BHIM-UPI (including QR code payments).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The 2026 Amendment Bill <\/span><b>modifies this provision<\/b><span style=\"font-weight: 400;\">, empowering the government to notify which transactions can attract an MDR charge in future.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Section 269SU<\/b><span style=\"font-weight: 400;\"> \u2014 the provision being amended \u2014 currently applies to businesses with an annual turnover above \u20b950 crore.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, this is not the threshold likely to be used for the new MDR charge. Government sources indicate the actual MDR would apply to a <\/span><b>much smaller category of merchants<\/b><span style=\"font-weight: 400;\"> \u2014 those with turnover above roughly \u20b91-1.5 crore \u2014 and only on individual transactions above \u20b92,000.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">In other words, the fee is expected to target a narrower, lower-turnover set of merchants than what Section 269SU currently covers, not a wider one.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A possible MDR of 0.25-0.4% (industry sources) or &#8220;nominal, far lower than card MDRs&#8221; (Finance Ministry) is being discussed \u2014 this would exclude roughly 95% of current UPI transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Notably, though only 4% of person-to-merchant (P2M) UPI transactions in 2025-26 exceeded \u20b92,000 in value, these accounted for around two-thirds of total UPI payment value \u2014 meaning the fee, if applied, would target high-value transactions disproportionately.<\/span><\/li>\n<\/ul>\n<h2><b>Government&#8217;s Reassurance<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Finance Ministry stated:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">All person-to-person UPI transactions will remain free, with no charges on ordinary consumers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Small merchants (kirana stores) will not face MDR.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Any MDR, if introduced, will be threshold-based, not blanket, and far lower than debit\/credit card MDR rates.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Payments Council of India (PCI) also clarified that consumers won&#8217;t pay extra even for UPI transactions to large merchants.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts note that while the Bill technically gives the government power to levy MDR on any UPI transaction, it is unlikely to impose broad charges.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Digital and financial inclusion remain central to government policy, and UPI&#8217;s biggest appeal has been that it is free \u2014 making a broad rollback risky, as it could push users back toward cash.<\/span><\/li>\n<\/ul>\n<h2><b>Why the Government Wants a Change<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">UPI has grown explosively \u2014 from its 2016 launch to over 24,000 crore transactions worth \u20b9314 lakh crore in 2025-26 (up 30% and 21% respectively from the previous year), making it the world&#8217;s largest real-time payment system.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Finance Ministry argues that subsidies alone cannot sustain the next phase of growth, especially expansion into rural and semi-urban areas, and that a &#8220;balanced framework&#8221; is needed to keep UPI &#8220;robust, inclusive, and future-ready.&#8221;<\/span><\/li>\n<\/ul>\n<h2><b>Conclusion<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While the Amendment Bill legally enables UPI charges, the government&#8217;s assurances and India&#8217;s digital inclusion priorities suggest ordinary users and small merchants will stay protected.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The real question going forward is how a &#8220;self-sustainable&#8221; UPI can be built without undermining the very affordability that made it a global success story.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/business\/upi-fee-free-citizens-merchants-nominal-charge-government-10824104\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a> | <a href=\"https:\/\/www.thehindu.com\/business\/will-upi-remain-free-to-use-explained\/article71312383.ece\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>UPI fee debate: The new Bill permits MDR on select transactions, while consumers and small merchants remain protected.<\/p>\n","protected":false},"author":18,"featured_media":118141,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,9412,22,59],"class_list":["post-118121","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-mains-articles","tag-upi-fee-debate","tag-upsc-current-affairs","tag-upsc-mains-current-affairs-tag","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/118121","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=118121"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/118121\/revisions"}],"predecessor-version":[{"id":118142,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/118121\/revisions\/118142"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/118141"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=118121"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=118121"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=118121"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}