UPI, Digital Payments May Soon Attract Charges as Government Moves to Bring Back MDR After Six Years

The Central government is considering a major change to India's digital payments framework that could pave the way for the return of Merchant Discount Rate (MDR) on certain digital transactions after six years.

The Taxation and Other Laws (Amendment) Bill is set to be introduced in Parliament by the Finance Ministry. The proposed legislation seeks to amend the Payment and Settlement Systems Act, 2007, particularly Section 10A, which currently governs the waiver of MDR on specified digital payment modes.

Since 2020, following a Finance Ministry directive, UPI, RuPay cards, debit cards, and several digital payment methods have remained free of MDR charges to encourage the adoption of cashless transactions across the country.

However, if the proposed amendment is passed, banks and merchants may be allowed to levy MDR or payment gateway charges on digital transactions that are not specifically exempted by the government.

Under the new framework, the Centre will periodically notify a list of digital payment methods that will continue to remain free of charges. Transactions not included in that list could become eligible for MDR, giving the government greater flexibility to modify the exemption list through notifications instead of introducing fresh legislative amendments each time.

The proposed change is expected to make the country's digital payment regulations more adaptable while allowing the government to respond quickly to evolving payment technologies and market requirements.

The bill is yet to be debated and approved by Parliament. If enacted, it would mark the most significant policy shift in India's digital payments ecosystem since MDR was abolished in 2020.