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Opening doors for the reintroduction of the merchant discount rate (MDR) on high-value UPI payments, the finance ministry has notified amendments to the Payment and Settlement Systems Act (PSSA), 2007. In a gazette notification dated September 14, the ministry directed the banks and other system providers to not impose any charge on RuPay-powered debit cards and UPI payments of up to ₹2,000. “... The Central government hereby specifies the following electronic modes of payment, namely:... debit card powered by RuPay; and unified payments interface (UPI) transactions up to ₹2,000… No bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment specified in paragraph above,” read the order. This comes a month after the Parliament passed the Taxation And Other Laws (Amendment) Bill, 2026, which proposed to amend the Section 10A of the 2007 Act. At the time, the rule barred banks and system providers from “directly or indirectly” imposing a charge on all UPI payments. However, the new amendments last month enabled the Centre to notify which means of electronic payments could be exempted from MDR charges. The government has now specified the threshold (₹2,000) beyond which UPI payments can be charged. The ball now lies in the court of the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), which will now decide the specific MDR framework and rates for UPI transactions. The development comes days after reports surfaced that the government was all set to notify a framework for levying an MDR on select UPI payments. As per reports, UPI payments above ₹2,000 could now be potentially charged at 40 basis points (bps), or 0.4% of the transaction value. Issuing banks are set to benefit the most and could potentially receive 40% of the MDR, while the remaining fee could be divided equally between third-party application providers (TPAPs), such as PhonePe and Paytm, and acquiring banks. The NPCI is reportedly working on the modalities of the framework, and a detailed notification on the proposed fee is expected in the coming weeks. UPI MDR Back On The Table The zero-MDR regime was introduced in 2020 to accelerate the adoption of digital payments. However, UPI has since grown to become the dominant form of payments online. The payments infrastructure clocked 2,451 Cr transactions worth ₹29.82 Lakh Cr in August this year. Despite the growing number of payments, banks and payment companies continue to depend heavily on government incentives to cover the cost of processing transactions. Even a Parliamentary panel recently flagged that the incentive mechanism does not adequately cover the costs incurred by banks and payment companies in maintaining the payments infrastructure. This has widened the gap between UPI’s transaction growth and its monetisation. While UPI accounts for a significant share of TPAP volumes, much of this activity generates little or no direct transaction revenue for the companies processing it. But the introduction of MDR is expected to give a major filing to the fintech companies. As the news poured in of the potential MDR rollout last week, Pine Labs’ stock jumped 16.9% to close Friday’s trading session at ₹202.35 on the BSE. Mobikwik also climbed just over 8% to close at ₹209.80, AvenuesAI jumped 6.1% to ₹16.31 and Paytm rose 3.9% to ₹1,806.25.
document fetched 2026-09-15 02:52 · canonical https://inc42.com/buzz/govt-notifies-new-rules-no-mdr-for-upi-transactions-under-%e2%82%b92000