Summary
India's Parliament on August 4 introduced legislation that creates the first legal authority since January 2020 to impose merchant fees on Unified Payments Interface transactions — ending six years of government-mandated zero-cost digital payments for large merchants. The Taxation and Other Laws (Amendment) Bill, 2026 amends Section 10A of the Payment and Settlement Systems Act, replacing the blanket zero-MDR prohibition with a framework under which the Central Government can notify which payment modes remain exempt. Industry proposals target an MDR of 5-7 basis points on UPI transactions exceeding ₹2,000 (~$21) for merchants with annual turnovers above ₹1-1.5 crore (~$105K-$157K), leaving 90% of merchants fee-exempt.
Key Facts
- Bill introduced August 4, 2026 in Lok Sabha by Finance Minister Nirmala Sitharaman
- Amends Section 10A of Payment and Settlement Systems Act, 2007
- Zero-MDR had been in effect since January 1, 2020
- UPI processed 241.6B transactions worth ₹314.2 lakh crore (~$3.29T) in FY2026 (30% YoY volume growth)
- UPI July 2026 record: 23.7B transactions worth ₹29.9 lakh crore (~$313B)
- UPI accounts for ~84% of all digital payments in India
- Government subsidies covered only 11-14% of industry's actual infrastructure costs
- Proposed MDR: 5-7 bps on transactions >₹2,000 for merchants with turnover >₹1-1.5 crore
- 90% of merchants would remain fee-exempt under proposed thresholds
- Even 0.1% MDR would unlock ~$3.1B in annualized revenue for the ecosystem
- PhonePe (45% UPI share) paused IPO in March 2026; MDR would add payment revenue line
Why It Matters
India's UPI MDR amendment is one of the most consequential fintech regulatory events of 2026. The world's largest real-time payment network — handling 50% of global real-time digital transactions — has operated for six years as a revenue-free public service, with payment companies absorbing infrastructure costs. The amendment ends that experiment for large merchants while protecting small vendors and consumers. For PhonePe, Google Pay, and Paytm, the change transforms their core business model: payment infrastructure can finally generate direct revenue rather than serving only as a loss leader for financial services cross-sells. The structural risk is scope creep — the amendment gives the executive branch permanent authority to expand fees without returning to Parliament. For global fintech observers, India's transition from zero-MDR to a fee-based model offers lessons for other markets building national real-time payment systems.