Govt may restore merchant charges on UPI, RuPay transactions for big firms

The government is evaluating a proposal to bring back merchant charges on transactions conducted through Unified Payments Interface (UPI) and RuPay debit cards, according to a report by The Economic Times.

These charges, known as the merchant discount rate (MDR) in the payments industry, are fees merchants pay to banks to process real-time transactions. Currently, no MDR is applied to UPI and RuPay debit card payments, which are facilitated through the National Payments Corporation of India (NPCI).

The news report quoted a banker saying that a formal request to reintroduce MDR on UPI transactions for large merchants has been submitted to the Union government by the banking industry, and the relevant departments are reviewing it. According to the proposal, MDR could be reinstated for merchants with an annual turnover exceeding Rs 40 lakh based on their GST filings.

Pricing structure for merchants

The government may also consider a tiered pricing model for UPI, where larger merchants would incur higher charges, while smaller businesses would pay a reduced fee. For merchants with an annual turnover below Rs 40 lakh, UPI payments would remain free, the report said.

Another banker explained that big merchants already pay MDR for other payment methods like Visa and Mastercard debit cards, as well as all credit cards. So, they shouldn’t be exempt from similar charges on UPI and RuPay debit card transactions.

Until the government removed MDR in the FY22 Budget to promote digital payments, merchants were charged a fee of under 1 per cent of the transaction amount. However, as UPI has now become the primary mode of retail payments and RuPay has gained traction, industry experts believe the blanket waiver is no longer necessary.

MDR reintroduction

Industry insiders point out that large retail merchants receive over 50 per cent of their transactions through cards, implying that an MDR on UPI payments should not be a significant burden, the report said.

In February, Payments Council of India Chairman Vishwas Patel expressed concerns about the government subsidising large merchants by offering zero charges across all merchant categories. He argued that businesses capable of paying a nominal fee for payment processing should do so, instead of relying on taxpayer-funded subsidies, The Economic Times mentioned.

Payment subsidies

The Union Budget this year saw a reduction in the allocation for payment subsidies, dropping from over Rs 3,500 crore to Rs 437 crore. Additionally, banks are still awaiting last year’s subsidy payments, the news report said.

The issue of MDR on digital payments was also raised by fintech executives in a recent meeting with newly appointed RBI Governor Sanjay Malhotra.

UPI transactions

According to National Payments Corporation of India (NPCI) data, UPI recorded 16.11 billion transactions in February 2025, amounting to nearly Rs 22 trillion. In January, the total transactions stood at 16.99 billion.