UPI payments above Rs 2,000 may soon attract charge! Will payments for milk, vegetables, groceries, and taxi fares be affected? Here’s what you need to know

Finance Minister Nirmala Sitharaman proposed removing the existing prohibition on banks and payment service providers from levying MDR on electronic payment modes.

Written by: Victor Dasgupta Edited by: Victor Dasgupta

Published: August 5, 2026, 8:12 AM IST

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https://www.india.com/business/upi-payments-merchant-discount-rate-mdr-nirmla-sitharaman-finance-minister-taxation-bill-milk-vegetables-groceries-auto-taxi-fares-digital-payment-online-transection-8493296/ Copy

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New Delhi: The Modi government is reportedly planning to bring a major change for the UPI users, allowing the levy of a Merchant Discount Rate (MDR) on UPI payments. It is important to note that UPI has become the most widely used mode of digital payments over the years. The proposed fee is likely to range between 0.25 percent and 0.4 percent on business transactions above RS 2,000. However, person-to-person (P2P) UPI transfers will remain exempt from this charge.

In the Taxation and Other Laws (Amendment) Bill, tabled in Parliament, Finance Minister Nirmala Sitharaman proposed removing the existing prohibition on banks and payment service providers from levying MDR on electronic payment modes.

The Modi government officials said that no decision has yet been taken on when the proposed change, if approved, would come into effect.

Here are some of the key details:

• According to official estimates, the Rs 2,000 limit will affect only about 5 percent of all UPI transactions
• These transactions account for nearly 65 percent of the total transaction value.
• Everyday purchases such as milk, vegetables, groceries, or auto and taxi fares will remain unaffected.
• In July, 23.7 billion UPI transactions were recorded, with a total transaction value of Rs 29.9 lakh crore.
• An official said that even if the proposal is implemented, 95% of UPI transactions will remain exempt from MDR.
• Not all businesses are expected to pass on this fee to customers, as the amount involved would be very small.
• UPI has become India’s largest digital payments platform, processing billions of transactions every month.
• To make the system more robust and sustainable, the government and regulators are exploring new options.

It is worth noting that if the proposal is implemented, ordinary users will not be affected, but large merchants will no longer enjoy free UPI payments. The Modi government’s final decision could shape the future of India’s digital payments ecosystem.