India’s government is moving to introduce merchant fees on its Unified Payments Interface (UPI), a system that currently processes over 23.6 billion transactions worth more than $310 billion each month—all without charges for businesses.

Legislation opens door to merchant fees

The Finance Ministry has tabled the Taxation and Other Laws (Amendment) Bill, 2026, which proposes changes to the Payment and Settlement Systems Act of 2007. The amendment would allow the government to impose a merchant discount rate (MDR) on “one or more electronic modes” of payment, including UPI.

The bill itself does not set any fees. Instead, it gives the government flexibility to decide later which digital payment methods will remain free and which will attract charges. Media reports suggest the focus may initially be on large merchants.

UPI transactions have been free for businesses since January 2020, when the government waived fees to encourage adoption. That policy shift helped UPI become the default payment method for consumers and sellers across India.

Industry divided over costs and sustainability

The debate over merchant fees has been ongoing for months, involving the Finance Ministry, the Reserve Bank of India, and payment companies. Banks and fintech firms have argued that the current model is unsustainable due to rising transaction volumes and infrastructure costs.

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Amrish Rau, CEO of Pine Labs, welcomed the move in a post on X. “For us to get to 90% penetration, and to take UPI global, startups, fintech and banks will need to fund this expansion through continued investments in IT, innovation and cyber security,” he wrote. The change would allow the industry to recover some costs from merchants while keeping consumer and peer-to-peer payments free.

A recent report from brokerage Bernstein argued that introducing merchant fees could preserve UPI’s consumer-friendly model while creating a revenue stream for banks and payment companies. The report noted that transactions above Rs. 2,000 account for just 4% of payment volumes but 70% of the total transaction value.

The legislation does not specify which transactions might be affected or what the fees could be. But experts say it marks the first step toward building a sustainable revenue model for India’s digital payments ecosystem.

If the bill passes, the government could begin testing fee structures in the coming months. The question now is whether merchants—especially small businesses—will absorb the costs or pass them on to consumers.

For now, UPI remains free for users. But the era of zero fees for businesses may be ending.