New Delhi, August 13, 2026 (Yes Punjab News)
The Centre is examining ways to make the Unified Payments Interface (UPI) ecosystem financially sustainable, including the possibility of restoring the merchant discount rate (MDR) on select high-value transactions and introducing a tiered incentive mechanism to gradually reduce government support.
The Department of Financial Services (DFS), under the Finance Ministry, informed the Parliamentary Standing Committee on Finance that both options are being examined in view of the rising cost of maintaining the digital payments ecosystem and the burden on the government exchequer.
According to the DFS, one option under consideration is to restore MDR for transactions above a specified threshold or for certain categories of merchants. The other is a tiered incentive structure under which government support would be progressively reduced over the coming years.
The parliamentary panel, in its report tabled on Wednesday, noted that the government has allocated Rs 2,000 crore to incentivise UPI transactions and compensate stakeholders for losses arising from zero-MDR transactions. This compares with an estimated operational cost of Rs 20,700 crore for the industry.
The committee cautioned that inadequate compensation could affect investments in critical areas such as cybersecurity, fraud prevention and payment network infrastructure.
UPI transactions have carried zero MDR since January 2020, when the government abolished the charge to accelerate digital payments and encourage the transition from cash to electronic transactions. Before its abolition, MDR of up to 0.30 per cent was applicable to UPI merchant transactions.
The panel also noted that UPI could process as many as 150 billion transactions a month and add around 600 million new users. It observed that the current government incentive covers only about 11 per cent of the industry’s actual costs and 14 per cent of potential MDR collections.
The Parliament recently passed the Taxation and Other Laws (Amendment) Bill, 2026, which amended the Payment and Settlement Systems Act, 2007, enabling the government to specify electronic payment modes that may continue to receive statutory protection from charges.
However, the government has not yet authorised the imposition of MDR on UPI transactions.
FOLLOW NOW
