Sitharaman Clarifies UPI Charges: MDR on Merchants Only, Consumers Exempt

Finance Minister Nirmala Sitharaman has drawn a clear line on the future of UPI pricing, stating that any Merchant Discount Rate (MDR) introduced on the platform will apply exclusively to merchants and not to consumers. The clarification, issued Thursday in a post on X, directly rebutted opposition claims that ordinary users would shoulder the cost.

"Merchant Discount Rate (MDR) applies only on the merchants and not on the end users/customers," Sitharaman wrote. "It will support the Banks & Fintech to invest more on infrastructure, innovation & security. All users of UPI will reap the benefits of this investment."

The minister stressed that no MDR has been decided yet. The UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), will examine the matter only after Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, she said. That bill, which the Lok Sabha passed on Thursday, does not itself introduce any fee. It amends Section 10(A) of the Payment and Settlement Systems Act, 2007, empowering the central government to notify which electronic payment modes or categories of transactions will remain free of charges.

The Payments Council of India (PCI) reinforced the message on Friday, saying UPI will continue to be free for consumers and that small merchants, including kirana stores, will not be charged for accepting digital payments. The industry body said any merchant service charges that may apply to larger merchants would be commercial arrangements between those merchants and payment providers and would not mean consumers have to pay for using UPI.

"Banks, fintech companies, NPCI and the RBI have been investing in technology, cybersecurity, fraud prevention and innovation to maintain UPI's reliability," PCI said in a statement. Protecting small merchants remains central to the ecosystem's inclusive growth, it added.

The clarifications come amid a broader policy debate over the economics of India's digital payments ecosystem. The legislative update has revived discussion on the zero-MDR regime that has underpinned UPI's explosive growth. UPI processed over 24,162 crore transactions worth more than ₹314 lakh crore in FY26, with monthly volumes crossing 23 billion, according to source reporting. More than 55 crore Indians now use the system, making it the world's largest real-time retail payment platform.

An opinion piece in the Economic Times argued that reintroducing MDR could jeopardize the gains made under the zero-MDR policy. It noted that before the fee was eliminated, many small merchants viewed digital payments as an additional business expense on margins of 3-5%. The zero-MDR regime allowed millions of kiranas, pharmacies, tea stalls and auto drivers to accept digital payments without cost, creating verifiable digital credit trails that enabled banks and fintech firms to assess creditworthiness for micro-enterprises.

Sitharaman's statement was a direct response to Congress leader Jairam Ramesh, who had argued on X that the burden of an MDR would ultimately be passed on to ordinary people. He also claimed that the government's assertion that charging an MDR is the only way to make UPI financially sustainable is "entirely wrong." In a further post, Ramesh suggested that the Reserve Bank of India's surplus transfer of ₹2.86 lakh crore to the government in FY26 could fund the system without imposing fees.

The finance minister also criticized the opposition for repeated disruptions during the ongoing Monsoon session of Parliament, saying the proposed legislation could have been debated on the floor of the House if the Congress party had engaged constructively.

Sitharaman's clarification removes immediate uncertainty for merchants, fintech operators and banks planning infrastructure investments. By confirming that consumers and small merchants remain shielded from direct charges, the minister signaled continuity of the core principle that made UPI the country's dominant payment rail. The committee's future deliberations on MDR for larger merchants are expected to follow the passage of the enabling bill.