Government Proposes 0.25‑0.5% MDR on UPI Transactions >₹2,000 – Policy Reversal & UPSC Implications

Government’s New Tax on High‑Value UPI Payments The Taxation and Other Laws (Amendment) Bill, 2026 seeks to amend Section 10A of the Payment and Settlement Systems Act, 2007 . The amendment would allow the government to levy a MDR of 0.25‑0.5% on UPI transactions exceeding ₹2,000 . While the threshold covers only about five percent of transaction volume, it would affect roughly 65 % of the total value transferred. Key Developments Amendment to Section 10A to permit MDR on high‑value UPI payments. Proposed MDR range: 0.25‑0.5% on transactions above ₹2,000 . Estimated impact: ~5 % of transaction count but ~65 % of transaction value. Charges to be collected by banks and the NPCI ecosystem. Important Facts 1. Policy reversal : UPI was launched with a zero‑MDR policy to encourage a shift from cash after the 2016 demonetisation drive. The new levy contradicts that original subsidy. 2. Two‑sided market dynamics : UPI connects merchants and consumers. In such markets, a tax on one side can be shifted to the other, but competitive pressure often forces intermediaries (banks, fintechs) to absorb the cost, potentially reducing investment in security and expansion. 3. Financial inclusion impact : UPI has brought informal transactions into a digital trail, aiding credit‑scoring and tax compliance. A cost on the rail could deter low‑value users, undermining inclusion goals. 4. GST on credit‑card services : India already imposes 18 % GST on credit‑card interest and fees, a practice uncommon internationally. The proposed MDR follows a similar pattern of taxing payment services. UPSC Relevance Understanding this development touches upon several GS papers. <span class="key-term" data-definition="GS3 – Economy: Covers fiscal policy, banking reforms, digital payments, and financial incl