Budget 2026: UPI, RuPay subsidy for FY27 at ₹2,000 crore; MDR unchanged

Budget stays silent on MDR, industry to pursue bid in coming months

The Union Budget has allocated a ₹2,000 crore incentive to promote low-value, peer-to-merchant (P2M) unified payments interface (UPI) and RuPay debit card transactions, even as such payments continue to carry zero merchant discount rate (MDR). 

 

This was 8.9 per cent lower than the final allocation in financial year 2025–26 (FY26), which stood at about Rs 2,196.21 crore. The Budget Estimate for FY26 was Rs 437 crore.

 

Sources said that the payments industry had been following up on a potential MDR on such transactions with the finance ministry in the runup to the Budget. A person in the know said that the industry will reach out to the ministry once again to pursue its MDR bid in the next few months.

 

In January, UPI transactions posted a marginal rise of 0.32 per cent to 21.70 billion, against 21.63 billion in December. In terms of value too, transactions were up by 1.3 per cent to ₹28.33 trillion during the month.

 

However, the allocation remains at least five times lower than what the industry estimates is needed to support the growth and sustainability of India’s flagship real-time payments system, with expectations ranging between ₹10,000 crore and ₹15,000 crore. 

 

According to data, the highest government payout for the incentive was at ₹3,631 crore in FY24. 

 

According to the industry, India has a potential to record 100 billion UPI transactions in a month over the next decade, subject to the payment system's monetisation.

 

Vishwas Patel, managing director of AvenuesAI Ltd and chairman of the Payments Council of India, said the industry had been seeking incentives of over ₹10,000 crore, and argued that instead of relying on subsidies, a low regulated MDR of 30 basis points should be permitted on UPI P2M transactions for merchants with annual turnover above ₹20 lakh.

 

"With zero MDR of UPI and the government allocating a mere ₹2,000 crore for processing 300 million transactions every day for free will choke the entire ecosystem for funds for scaling and growth... The incentives can continue for smaller merchants by offering them zero MDR. UPI P2P can continue be zero charges,” he said.

 

Patel explained that enabling MDR for RuPay debit and UPI large merchants will ensure ‘sustainable monetisation for service providers without disrupting digital payment adoption at the grassroots level as the merchants already pay MDR for different payment systems.’

 

“Why should the government incentivise us with taxpayer money for processing transactions for large merchants? UPI dominates as India’s most favourite payment option and every merchant will continue to offer UPI even by paying a mere 30 bps as processing charges as they are anyways paying 2 per cent for credit cards and other options," he said.

 

MDR was made zero for RuPay Debit Cards and BHIM-UPI transactions in January 2020 to promote digital transactions.