By

, ET BureauLast Updated: Sep 22, 2026, 12:56:00 AM IST

Synopsis

Government may end UPI subsidies for small transactions as merchant fees are introduced. Taxpayer-funded incentives for UPI and RuPay transactions are being phased out. No new subsidies have been paid for transactions since April 2025. This shift aims to make the payment ecosystem self-sustaining and reduce taxpayer burden. Incentive disbursements have significantly decreased in recent fiscal years.

Mumbai: The government could discontinue subsidies for low-value Unified Payments Interface transactions following the introduction of merchant discount rate (MDR) on larger UPI payments, as banks and payment companies begin earning transaction-linked revenue from the network, people familiar with the matter said.

The Centre has budgeted ₹2,000 crore for incentives on UPI and RuPay transactions in FY27, but no fresh subsidy has been paid for transactions undertaken since April 2025, the people said.

"The idea behind introducing MDR on larger-value UPI payments was to move the ecosystem away from taxpayer-funded subsidies," said a senior banking official. "No fresh subsidy has been paid for transactions undertaken over the past year-and-a-half, and the government did not want taxpayers to continue subsidising payments made to large merchants."

Also Read | FM Nirmala Sitharaman clarifies UPI MDR charges won't affect consumers

The government's UPI incentive disbursements had fallen sharply to ₹1,046 crore in FY25 from ₹3,631 crore in FY24.

The government began compensating banks and payment companies after MDR on UPI and RuPay debit-card transactions was made zero from January 2020 to accelerate digital-payment adoption.

Also Read | UPI charges could reverse digital payments gains, push users back to cash, says ex-NITI VC Rajiv Kumar

The incentive scheme was subsequently designed to partly offset the adverse impact of zero MDR, encourage small merchants to accept digital payments and support investment in secure payment infrastructure, particularly in smaller cities and rural areas.

...moreless

...moreless