India weighs UPI MDR restoration
Analysis based on 7 articles · First reported Aug 13, 2026 · Last updated Aug 13, 2026
The potential restoration of MDR on UPI transactions could increase costs for merchants and payment processors, potentially affecting the profitability of digital payment companies and banks. However, the government's phased approach and continued incentives may mitigate immediate market disruption, while the industry's under-compensation could strain infrastructure investments.
The India — India, through the India — Ministry of Finance (India) and its India — Department of Financial Services (India), is considering restoring the merchant discount rate (MDR) on certain high-value Unified Payments Interface (UPI) transactions or introducing a tiered incentive structure to gradually reduce government support for the digital payments ecosystem. This was disclosed in a reply to the India — Standing Committee on Finance, which tabled a report noting that the government allocated Rs 2,000 crore to incentivize UPI transactions and compensate for losses from zero-MDR, compared to the industry's estimated operational cost of Rs 20,700 crore. The committee warned that inadequate compensation could affect investments in cybersecurity, fraud prevention, and payment network infrastructure. UPI has carried zero MDR since January 2020, and the system is projected to process 150 billion transactions monthly with 600 million new users. The India — Parliament of India recently passed the Taxation and Other Laws (Amendment) Bill, 2026, amending the Payment and Settlement Systems Act, 2007, to allow the government to specify electronic payment modes that may continue to receive statutory protection from charges. The government has not yet permitted the levy of MDR on UPI transactions.
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