As per the report, the proposal under discussion is to levy MDR on merchants with an annual turnover of around ₹1 crore to ₹1.5 crore, and only for UPI transactions exceeding ₹2,000. The final decision is yet to be taken.
If implemented, it would mark a significant policy shift after the government removed MDR on UPI payments in January 2020 to accelerate digital payment adoption.
What is MDR and why is it being considered again?
Merchant Discount Rate, or MDR, is a fee that merchants pay to banks and payment service providers whenever a customer makes a digital payment. It helps cover the costs of processing transactions, maintaining payment infrastructure and settling funds.
The government made UPI transactions zero-MDR from January 2020 to encourage digital payments. The move contributed to rapid growth in UPI usage across the country.
According to NPCI, annual UPI transaction volumes have increased from about 20 million in FY17 to nearly 242 billion in FY26. During the same period, the total transaction value has surged from ₹0.07 lakh crore to around ₹314 lakh crore.
In June alone, UPI processed 22.72 billion transactions worth ₹28.92 lakh crore.
Who could be affected if MDR returns?
According to the report, the proposed MDR is expected to apply only to:
-Large merchants with annual turnover above ₹1-1.5 crore
-UPI transactions above ₹2,000
The report added that the government may fix MDR at 5-7 basis points if the proposal is approved. Earlier, the Payments Council of India had recommended an MDR of 0.30% on UPI transactions undertaken by large merchants.
Small merchants are unlikely to be affected. Nearly 90% of merchants accepting UPI payments fall within the small enterprise category and are expected to remain exempt.
The report said the government is expected to take a final decision on the proposal after discussions at the highest level.