The Zero Merchant Discount Rate (Zero MDR) is a provision and a concept in India's digital payments ecosystem where the fee a merchant pays for accepting digital payments is set to zero. The Merchant Discount Rate (MDR) is typically a percentage of the transaction value that a business pays to its bank and payment service providers to process a transaction.
The Zero MDR policy was introduced by the Government of India, taking effect from January 1, 2020. Its origin lies in the government's push to promote digital payments by removing the cost barrier for merchants, who were previously disincentivized by the MDR fee. The problem it solved was the high cost of acceptance for merchants, which hindered the mass adoption of digital transactions.
The mechanism was implemented through amendments to the Payment and Settlement Systems Act, 2007 (specifically Section 10A) and the Income-tax Act, 1961 (Section 269SU). This provision mandates Zero MDR on transactions made using the indigenous Unified Payments Interface (UPI) and RuPay debit cards. Section 269SU further requires businesses with a turnover exceeding ₹50 crore in the preceding year to provide facilities for accepting these prescribed electronic modes. Since the payment infrastructure still incurs costs, the government compensates the ecosystem participants, such as banks and the National Payments Corporation of India (NPCI), through an annual incentive scheme.
The concept connects directly to the RBI-regulated MDR framework and the government's push for financial inclusion.
A significant change has been proposed recently: the Union Ministry of Finance has proposed amendments to the Payment and Settlement Systems Act, 2007, which could scrap the Zero MDR provision under Section 10A. The Taxation and Other Laws (Amendment) Bill, 2026, was passed by the Lok Sabha to empower the government to allow charges on UPI to fund its growth. While the current policy remains Zero MDR, the proposed change aims to reintroduce a nominal MDR on a limited set of high-value merchant transactions, with the clarification that consumers will not be charged.