Bill opens the door to MDR returning on UPI

The government introduced the Taxation and Other Laws (Amendment) Bill, 2026 in the Lok Sabha on Tuesday, 4 August. Inside it sits a proposed amendment to the Payment and Settlement Systems Act, 2007 that would give the government flexibility to decide which electronic payment modes remain exempt from merchant charges, including the merchant discount rate.

Read the stage carefully, because it matters. The bill does not impose MDR on UPI or on any other digital payment mode. It allows the government to decide through future notifications which modes continue to remain free of charges and which may attract them. Nothing changes in your settlement file this week. What changes is that the legal switch now exists.

MDR is the fee a merchant pays on a digital transaction, shared between the acquiring bank, the card or payment network and the issuer. It is charged to the seller, not the buyer. UPI currently carries no such charge for merchants, which is a large part of why acceptance spread from organised retail down to kirana counters with no visible cost to the seller.

Entrackr notes it had reported over a year ago that the Finance Ministry and the Reserve Bank of India were considering allowing MDR on UPI transactions for large merchants. The Finance Ministry denied that report at the time. The bill names no rate, no turnover threshold and no date.

For a D2C brand the exposure is uneven. If your checkout leans prepaid on UPI because it is free and it solves your RTO problem, a future notification could turn your cheapest rail into a line item. Model it now at a hypothetical 0.3 to 0.5 percent of prepaid GMV and see what it does to contribution margin per order. Brands running thin on paid acquisition feel that first.

The second-order effect is the one to watch. Zero MDR is why almost every Indian checkout nudges hard toward UPI. Apply a charge to large merchants only and the incentive flips: the biggest sellers start optimising payment mix again, and card issuers and BNPL providers regain a pricing argument they have not had in years. Check when your gateway contract renews. Pricing power moves quickly once it starts moving.