UPI Payments Will Remain Free For Consumers, Says PhonePe CEO Amid MDR Debate

UPI payments will continue to remain free for consumers, PhonePe CEO Sameer Nigam said on Saturday, seeking to allay concerns over transaction charges after the Lok Sabha passed a tax amendment bill empowering the government to levy Merchant Discount Rate (MDR) on select electronic payment modes.

"UPI is and will remain free for all Indian consumers!" Nigam said in a post on X, adding that consumers "will not be charged anything for making UPI payments."

His clarification comes amid renewed debate over the possibility of introducing MDR on certain business-directed UPI transactions, raising questions over whether India's most widely used digital payments platform could eventually become chargeable for users.

Consumer UPI Payments To Remain Free

The Payments Council of India (PCI) also clarified on Friday that UPI payments would remain free for consumers and that small merchants would not be required to pay MDR for accepting UPI payments.

"Merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not mean that consumers pay to use digital payments," the industry body said in a post on X.

According to the PCI, any charges, if introduced, would be levied at the merchant end under commercial arrangements with payment service providers rather than being collected directly from customers.

The clarification means that person-to-person UPI transactions will continue to remain free, while any future MDR would apply only to eligible business transactions.

What The Proposed MDR Means

The current debate stems from the Taxation and Other Laws (Amendment) Bill, 2026, which was passed by the Lok Sabha through a voice vote.

The legislation empowers the government to levy MDR on selected electronic payment modes. For certain business-directed UPI transactions above ₹2,000, the potential MDR is expected to be in the range of 0.25% to 0.4%.

However, person-to-person transactions are outside the scope of the proposed framework, meaning individuals transferring money to friends or family will not be affected.

Merchant Discount Rate (MDR) is the fee merchants pay to banks and payment service providers for processing digital payments. Historically, UPI transactions have been processed without MDR, with the cost absorbed by banks, fintech firms and other ecosystem participants.

Small Merchants To Remain Protected

The PCI said small merchants and kirana stores would continue to remain exempt from MDR for accepting UPI payments.

"Small merchants are not required to pay any charges (MDR) to accept UPI payments," the council said, adding that keeping digital payments accessible for small businesses remains central to UPI's inclusive growth.

The industry body noted that UPI has evolved into a critical part of India's digital infrastructure since its launch in 2016, but maintaining the ecosystem requires continuous investment in technology, cybersecurity, fraud prevention, regulatory compliance and customer support.

"For nearly 10 years, banks, payment companies, fintechs, NPCI and RBI have collectively invested in technology, cybersecurity, fraud prevention, innovation and customer support," the PCI said.

Focus Shifts To Sustainable Funding Model

The debate over MDR has reignited discussions on how India's rapidly expanding digital payments ecosystem should be funded as transaction volumes continue to surge.

While the new legislation allows the government to impose MDR on selected electronic payment modes, both the PCI and PhonePe have emphasised that ordinary consumers will continue to make UPI payments free of charge, with any potential fee applicable only to eligible merchant transactions above the prescribed threshold.