India mulls MDR levy on high-value UPI payments, RBI governor says costs will shift

The government plans to allow a 0.25-0.4% merchant discount rate on UPI transactions above Rs 2,000, while the RBI chief warns that someone will ultimately bear the expense.

Parliament has received the Taxation and Other Laws (Amendment) Bill, which would permit banks and payment providers to charge a merchant discount rate of 0.25% to 0.4% on UPI payments exceeding Rs 2,000, leaving person-to-person transfers untouched. Finance Minister Nirmala Sitharaman introduced the proposal, and officials estimate that only about five percent of UPI transactions would be subject to the fee, though they account for nearly two-thirds of total transaction value.

RBI governor Sanjay Malhotra cautioned that it is premature to specify the exact mechanism of cost transfer, but affirmed that the expense will be absorbed somewhere in the system, whether by consumers or the broader economy. The Rs 2,000 cut-off means routine small-value purchases are unlikely to be impacted. An industry official indicated that a ceiling on the MDR is expected, arguing that unlike credit cards, UPI carries no funding cost. No implementation date has been set, and the government will monitor the situation before finalising the rule.