Free UPI Services May End Soon: Govt Plans to Charge MDR on Transactions Above ₹3,000 – Here’s What It Means for You

India’s most used digital payment system, UPI (Unified Payments Interface), may soon lose its “free” status for higher-value transactions. According to reports, the government is planning a major policy shift that could bring back Merchant Discount Rate (MDR) on transactions above ₹3,000, ending the zero-MDR regime in place since 2020.

What’s Changing in UPI?

UPI has revolutionized India’s digital economy by making digital payments seamless, fast, and free for both consumers and businesses. However, media reports suggest that the government is reconsidering its zero-MDR policy, especially for high-value transactions.

According to NDTV Profit, the government might soon allow a 0.3% MDR on UPI transactions exceeding ₹3,000, but small-value payments will continue to remain free.

The Payments Council of India has recommended this MDR rate for larger merchants, aiming to bring UPI charges closer in line with credit/debit card MDRs, which currently range between 0.9% and 2%.

Why the Change?

This move is being considered to address the financial burden faced by banks and payment service providers (PSPs). Since 2020, when the zero-MDR rule was enforced, PSPs have had to bear the entire cost of UPI infrastructure, leading to:

• Operational cost pressures

• Limited investment interest in the payment sector

• Imbalance in revenue versus rising transaction volumes

UPI now accounts for over 80% of India’s retail digital payments, and merchant transactions alone have crossed ₹60 lakh crore since the zero-MDR regime began. However, the lack of transaction-based income has been a pain point for stakeholders.

Who Will Be Affected?

• Small payments below ₹3,000: Expected to remain free

• Merchant payments above ₹3,000: Likely to incur a 0.3% MDR

• Customers: May indirectly bear the cost if merchants pass on MDR as a surcharge

Note: RuPay debit cards are currently exempt from MDR, and their status in this new UPI framework is still unclear.

Government Discussions Underway

A recent high-level meeting involving the Prime Minister’s Office, Department of Financial Services, and Department of Economic Affairs has reportedly reviewed MDR framework options. The final decision is expected within the next one or two months, after consultations with:

• Banks

• Fintech companies

• NPCI (National Payments Corporation of India)

What It Means for You

If the policy change is approved:

• UPI payments under ₹3,000 will likely stay free.

• For higher-value transactions, businesses will pay MDR, and consumers might end up paying more, especially at fuel stations, large retailers, hospitals, etc.

• This could impact the UPI usage trend for large purchases if merchants start pushing for alternative payment methods with lower transaction fees.

Final Thoughts

UPI has been a cornerstone of India’s fintech success story. But to sustain and scale the infrastructure, bringing back MDR may be inevitable. The challenge will be balancing affordability for users and viability for service providers—a delicate line the government must walk carefully.