India is preparing to bring back merchant fees on its wildly popular Unified Payments Interface, ending a six-year experiment with zero-cost digital transactions that the country’s own lawmakers have called unsustainable.

The Taxation and Other Laws (Amendment) Bill, introduced in the Lok Sabha on August 4-5, 2026, would amend Section 10A of the Payment and Settlement Systems Act, 2007, allowing banks and payment service providers to once again charge Merchant Discount Rates on select UPI transactions.

What’s actually changing

India banned MDR on UPI and RuPay debit card transactions back in January 2020, part of a sweeping push to get a billion-plus people comfortable tapping their phones instead of counting cash.

UPI processed a staggering 241.6 billion transactions worth ₹314.2 lakh crore in fiscal year 2026, a 30% year-on-year jump in volume. July 2026 alone set a record with 23.7 billion transactions valued at ₹29.9 lakh crore.

Government subsidies have covered only about 11-14% of the industry’s actual infrastructure costs. A March 2026 Parliamentary Standing Committee report put it bluntly, labeling the zero-MDR model unsustainable and calling for a viable revenue stream.

The proposed fees are designed to be surgical rather than sweeping. MDR rates would land somewhere between 5 and 7 basis points, or less than 0.5%, and would only apply to transactions exceeding ₹2,000 made by larger merchants with annual turnovers of roughly ₹1-1.5 crore. Peer-to-peer transfers stay free. Payments to small vendors stay free.

Why crypto and fintech investors should care

The bill gives the government flexibility to determine which payment methods and what rates can incur fees without imposing charges directly on consumers.

Brazil’s Pix and China’s major payment systems operate with MDR charges of 30-40 basis points, significantly higher than what India is proposing.

The investment angle

The Indian government has earmarked a ₹2,000 crore budget for FY27 subsidies, signaling it plans to continue supporting the ecosystem even as private revenue returns.

The selective application matters too. By exempting small merchants and peer-to-peer transfers, India avoids the political backlash that killed MDR in the first place. It also creates a tiered system where payment companies can focus innovation and premium services on the large-merchant segment where they’re actually generating revenue.

The risk to watch is scope creep. The bill gives the government broad discretion to determine applicable payment modes and fee structures. What starts at 5-7 basis points on transactions over ₹2,000 could expand over time, particularly if fiscal pressures mount or if the payment industry lobbies for higher rates.