Will UPI Stay Free? GTRI Says New Bill Could Open Door To Merchant Charges

The government has introduced legislation in Parliament that could eventually allow merchant charges on selected Unified Payments Interface (UPI) transactions, potentially marking a shift from India's long-standing zero-charge digital payments regime, according to a report by the Global Trade Research Initiative (GTRI).

Finance Minister Nirmala Sitharaman introduced amendments to the Payment and Settlement Systems Act, 2007 in the Lok Sabha on August 4. While the Bill does not impose any Merchant Discount Rate (MDR), it would empower the Centre to decide through future notifications which electronic payment modes or transactions must remain free.

Under the existing framework, banks and payment service providers cannot levy charges on prescribed payment methods, including UPI and RuPay debit cards.

Bill Creates Framework, Not Immediate Charges

According to GTRI, policymakers are considering multiple options if merchant charges are introduced in the future. One proposal reportedly suggests applying an MDR of around 0.25% to 0.5% on UPI merchant payments above ₹2,000, while another would limit charges to merchants with annual turnover exceeding ₹1.5 crore.

The report stressed that these proposals have not been approved and remain under consideration. It also noted that merchants could ultimately pass on any additional costs to consumers through higher prices or convenience charges.

GTRI said UPI has become critical digital infrastructure, processing 23.6 billion transactions worth ₹29.9 trillion in July 2026. While the system requires continued investment in cybersecurity, fraud prevention and infrastructure, the report argued that alternative funding models should also be considered instead of a broad-based MDR.

GTRI Flags US Pressure on India's Payment System

The report linked the legislative changes with ongoing US criticism of India's digital payment ecosystem. It noted that the US Trade Representative's 2026 National Trade Estimate Report raised concerns over India's support for UPI and RuPay, arguing that domestic payment policies disadvantage foreign card networks.

GTRI said India should not introduce merchant charges simply to address US trade concerns or protect the business interests of companies such as Visa and Mastercard. Instead, any decision should be based on UPI's long-term financial sustainability.

The think tank also backed NPCI's proposed 30% transaction-volume cap for individual payment apps and supported India's payment-data localisation rules. It argued that both measures are intended to improve competition, reduce systemic risk and strengthen India's digital payments ecosystem rather than discriminate against foreign firms.