India's Digital Payment Ecosystem Set for a New Revenue Model

The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, introducing changes that could pave the way for Merchant Discount Rate (MDR) charges on selected digital payment transactions, including UPI. The amendments remove earlier provisions that prevented banks and payment service providers from levying such charges. The government said the move is aimed at ensuring a sustainable digital payments ecosystem by allowing banks and fintech firms to generate revenue for infrastructure, technology upgrades, and security enhancements.

Finance Minister Nirmala Sitharaman clarified that any MDR, if implemented, would be paid by merchants and not by customers. Transactions below ₹2,000, which account for nearly 95% of UPI payments, are expected to remain exempt. Personal UPI transfers between individuals will also continue without charges. Industry sources indicated that MDR, likely ranging between 0.3% and 0.5%, may apply only to merchant transactions above ₹2,000 at large businesses such as shopping malls, corporate supermarkets, and luxury hotels. The final decision on MDR is yet to be taken by the NPCI-led UPI and Services Steering Committee.