Sitharaman: UPI Charges Only on Merchants, Not Consumers — Clarification Removes Uncertainty for Digital Payments Ecosystem

Finance Minister Nirmala Sitharaman has directly intervened to quell growing uncertainty over the future cost of UPI transactions, stating unequivocally that any Merchant Discount Rate (MDR) introduced in the future “applies only on the merchants and not on the end users/customers.” The clarification, issued via social media platform X on Thursday, pushes back against claims by Congress leader Jairam Ramesh that the burden would inevitably be passed on to ordinary citizens.

“It will support the Banks & Fintech to invest more in infrastructure, innovation & security,” Sitharaman wrote. “All users of UPI will reap the benefits of this investment.”

The clarification follows the Lok Sabha’s passage on Thursday of the Taxation and Other Laws (Amendment) Bill, 2026, which amends Section 10(A) of the Payment and Settlement Systems Act, 2007. The legislation empowers the central government to notify which electronic payment modes or categories of transactions will remain free of charges. Crucially, the Bill does not itself introduce or prescribe any MDR — it creates the legal framework under which the government may later modify the current zero-MDR regime through a notification.

Sitharaman stressed that the UPI and Services Steering Committee, headed by the National Payments Corporation of India (NPCI), has yet to take any decision on MDR. That deliberation will begin only after the legislation is enacted, she said.

The minister also criticised opposition parties for disrupting proceedings during the ongoing Monsoon session, which prevented a floor debate on the Bill. “The Bill could have been discussed on the floor of the House if your party @INCIndia engages constructively in Parliament,” she said.

**Market uncertainty addressed**

The Payments Council of India (PCI) on Friday moved to further calm market jitters, issuing a statement that UPI will continue to remain free for consumers and that “small merchants, including kirana stores, will not be charged for accepting digital payments.” The industry body noted that any merchant service charges (MSC), where applicable, “would be commercial arrangements between merchants and payment providers” and would not translate into consumer-level fees.

“Banks, fintech companies, NPCI and the RBI have been investing in technology, cybersecurity, fraud prevention and innovation to maintain UPI’s reliability,” PCI said. It added that the costs of operating the national payments network are currently borne by banks and payment service providers.

The twin clarifications from the finance minister and the industry body remove a key source of regulatory uncertainty that had weighed on stocks of fintech and payment companies in recent days. Prior to the statements, analysts and commentators had warned that reintroducing MDR on small-value merchant transactions could reverse years of adoption gains.

**Stakes of the zero-MDR debate**

The policy question is high-stakes for India’s digital economy. An Economic Times commentary noted that during FY26, UPI processed over 24,162 crore transactions worth more than ₹314 lakh crore, with monthly transaction volumes crossing 23 billion. More than 55 crore Indians now use UPI, making it the world’s largest real-time retail payment system.

The commentary, written by a former banker and senior adviser to the Indian Banks’ Association, argued that “the success of India's digital payments revolution was never driven by technology alone” but was “powered by an equally transformative policy decision: elimination of MDR on UPI transactions.” It warned that reintroducing MDR could jeopardise the growth of digital acceptance among small merchants and stall innovation “at the exact moment India aims to digitise millions more small businesses.”

Supporters of MDR contend that banks and payment service providers require sustainable revenue to maintain infrastructure, bolster cybersecurity and invest in innovation. PCI echoed that argument, stating that “continued investment in infrastructure, security and innovation will be critical to ensuring that UPI, now a key national digital public infrastructure, remains reliable and resilient.”

Jairam Ramesh had argued in his post that “the Reserve Bank of India has sufficient capacity to maintain the UPI system on a financially sustainable basis without imposing any additional fees on merchants or consumers,” pointing to the ₹2.86 lakh crore surplus transferred to the government in 2025-26.

Think tank GTRI also weighed in, warning that India must not rewrite its UPI policies under US pressure and should defend policy autonomy and the long-term sustainability of its payments ecosystem.

Sitharaman’s clarification — that any charge falls on merchants, not consumers — effectively delineates the boundary for market expectations. The imminent question now shifts to what the NPCI-led steering committee will decide for larger merchants and high-volume transactors, which could still face commercial arrangements with payment providers. For the broad base of small merchants and consumers, the status quo appears intact.