New Delhi: India’s free UPI payment system may soon witness a major policy shift. The Central Government has tabled amendments to the Payment and Settlement Systems Act in Parliament that could enable merchant charges on certain UPI transactions in the future. UPI, which has become the country’s most popular digital payment platform, may see significant changes if the proposed amendments are implemented.
What did the government decide?
While no fee has been approved yet, the proposed legal change has opened the door for introducing a Merchant Discount Rate (MDR), something the payments industry has been demanding for years to support further growth of the digital payments ecosystem.
This fee could range from 0.25 per cent to 0.4 per cent for business payments above Rs 2,000. This charge will not apply to person-to-person transfers.
Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill in Parliament on Tuesday, proposing to remove the restriction on banks and payment service providers from charging MDR on electronic payment modes. Government officials said no decision has yet been taken on when this will be implemented.
What is the reason for the proposal?
According to official estimates, the 2,000 limit will cover only five per cent of total UPI transactions, but these transactions account for 65 per cent of total transaction value. It won’t affect everyday purchases like milk, vegetables, groceries, or auto-taxi payments.
In July, there were 23.7 billion UPI transactions, totaling Rs 29.9 lakh crore. An official said that even if implemented, 95 per cent of transactions would not be subject to MDR. Furthermore, not all businesses would pass on this fee to customers, which would be a very small amount.
It’s worth noting that UPI has become India’s largest digital payment system, with billions of transactions every month. The government and regulators are exploring new options to keep the system robust and sustainable.
If this proposal is implemented, it won’t affect ordinary users, but UPI payments will no longer be free for large merchants. The government’s final decision could determine the future direction of the entire digital payments ecosystem.
