Govt: no charges for UPI users; PSS Act amendment enables future MDR

The PSS Act amendment and MDR on UPI: what happened?

A clause in a Bill set off talk that UPI would soon cost money. The Finance Ministry put out a point-by-point reply. The short version for you: users pay nothing, P2P stays free, and the law change only opens a door for a small merchant-side charge later.

• No transaction charge for consumers making payments.
• All person-to-person (P2P) transfers stay free.
• If MDR is introduced, it will apply only to a limited set of merchant transactions above a threshold.
• Any such rate will be far lower than debit or credit card MDRs, and most merchant payments will stay free.
• Once Parliament passes the Bill, the NPCI-headed UPI and Services Steering Committee will decide on MDR, if any.
• The Ministry called reports of external pressure behind the change false.

What is MDR, and why is it in the news?

• MDR (Merchant Discount Rate) is a charge on the merchant’s side of a digital payment, not on the person paying.
• On UPI it has been zero for both merchants and citizens since January 2020.
• The government says subsidies alone cannot pay for the next phase of growth.
• A self-sustaining revenue model is meant to pay for cybersecurity, fraud prevention and new infrastructure, and to draw more companies in.

How has UPI grown?

• UPI was introduced in 2016 and is now the world’s largest real-time payment system, says the Ministry.
• In July 2026 alone it processed 2,366 crore transactions worth ₹29.9 lakh crore.
• It is live in 11 foreign countries.
• Earlier steps to widen acceptance include the RBI’s Payments Infrastructure Development Fund (PIDF), set up in 2021 for tier-3 to 6 cities, the North-East and J&K, and an incentive scheme for low-value BHIM-UPI payments by small merchants (MoF reply, July 2025).

Who pays what after the amendment?

How would a UPI MDR come about?

1. Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026
2. Section 10A of the PSS Act, 2007 is amended
3. UPI and Services Steering Committee (headed by NPCI) studies the need
4. It decides whether to set an MDR, the threshold and the rate
5. Any MDR applies only to limited merchant transactions above the threshold

Why does the PSS Act amendment and MDR on UPI matter?

What are the challenges in the PSS Act amendment and MDR on UPI?

• Even a nominal merchant charge could nudge some small sellers back to cash; the threshold will matter.
• The Ministry has not stated the threshold or the rate, so uncertainty remains until the committee acts.
• Misinformation spreads fast; the Ministry had to ask citizens to rely only on MoF, RBI and NPCI.
• Balancing free access with the cost of fraud prevention and upgrades is the core tension.

What should be done next on the PSS Act amendment and MDR on UPI?

• Set a threshold that keeps small merchants and everyday payments free.
• Publish the committee’s basis for any rate, so it is seen as fair.
• Keep investing in cybersecurity and fraud prevention as volumes rise.
• Push UPI further into rural and semi-urban areas, as the Ministry plans.

What can Prelims ask on the PSS Act amendment and MDR on UPI?

• PSS Act, 2007, Section 10A: proposed amendment via the Taxation and Other Laws (Amendment) Bill, 2026.
• MDR on UPI: zero since January 2020.
• Any future MDR: decided by the UPI and Services Steering Committee, headed by NPCI.
• UPI, July 2026: 2,366 crore transactions, ₹29.9 lakh crore; live in 11 foreign countries.
• PIDF: set up by RBI in 2021.

How to write about the PSS Act amendment and MDR on UPI in Mains

Practice question (10 marks, 150 words): Free digital payments helped UPI scale, but long-term sustainability needs a revenue model. Examine the case for a nominal, threshold-based MDR on UPI.

• Intro: UPI scale (July 2026 numbers) and zero MDR since January 2020.
• Case for MDR: security, fraud prevention, upgrades, competition.
• Safeguards: P2P free, users free, threshold, nominal rate, NPCI-led committee.
• Risks: small merchants, cash return, rumours.
• Conclusion: sustainable and inclusive UPI.