India to amend law to enable MDR on high-value payments

The Indian government has introduced a legislative amendment that could allow for the future imposition of fees on certain high-value digital transactions, marking a potential shift in the policy that has fueled the explosive growth of the Unified Payments Interface (UPI). The proposed change, however, would not directly charge consumers.

Finance Minister Nirmala Sitharaman tabled the Taxation and Other Laws Amendment Bill in Parliament this week. The bill seeks to amend the Payment and Settlement Systems Act, 2007, by removing a provision that currently prohibits banks and payment service providers from levying a Merchant Discount Rate (MDR) on specified electronic payment modes. MDR is a fee paid by businesses, not consumers, to banks and payment processors for handling digital transactions.

The amendment does not immediately impose any charges. Instead, it creates a legal framework that would empower the government to notify in the future which payment instruments, such as UPI or RuPay, would continue with zero MDR and which could attract merchant fees. Officials emphasized that any specific levy would require subsequent legislative approval, a formal government notification,...