Full Breakdown
Government’s Proposed Merchant Discount Rate (MDR) on High-Value UPI Transactions Sparks Debate
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Core Development: Proposed Merchant Fee on UPI Payments Above INR2,000
A government notification dated September 14 2026 prohibits banks and payment-system providers from charging any fee on UPI transactions up to INR2,000 and on RuPay debit-card payments. The same notice is silent on a merchant discount rate (MDR) for transactions above that threshold. An amendment to Section 10A of the Payment and Settlement Systems Act, passed in the Monsoon Session that concluded on August 13 2026, creates a framework that could allow an MDR on larger payments. The government says any MDR would fund cybersecurity, fraud-prevention and infrastructure upgrades. The fee, if introduced, is slated to take effect on October 15.
Background & Context
The Unified Payments Interface (UPI) launched on August 25 2016 and now underpins India’s digital-payments ecosystem. Transaction value rose from INR0.07 lakh crore in FY 17 to roughly INR314 lakh crore in FY 26. Until now, UPI payments have been free for both consumers and merchants, regardless of amount. The recent amendment follows a parliamentary bill passed on August 13 2026 that provided the legal basis for an MDR framework.
Data & Statistics
- Transactions above INR2,000 represent 4 % of total UPI volume but 66 % of total value.
- RBI surplus transferred to the government: INR2.87 lakh crore.
- Listed banks’ profits: INR4.11 lakh crore.
- NPCI pre-tax surplus: INR1,888 crore; cash holdings: INR6,119 crore.
Official Statements & Responses
The UPI and Services Steering Committee, headed by NPCI, will decide specific MDR rates once the framework is operational. Government officials argue that the rapid growth of UPI—now accepted in 11 countries—requires a sustainable revenue model to fund ongoing upgrades.
Criticism & Opposition
Former BharatPe co-founder Ashneer Grover called any future levy a de-facto tax, pointing to the RBI’s and banks’ large reserves as evidence that a new fee is unnecessary.
Congress leader Jairam Ramesh labeled the MDR a “Modi tax,” noting the swift sequence of statements from the finance minister in early August followed by the September notification. He warned the move could shift the cost of digital payments onto ordinary citizens.
Verbatim Quote
- “Decision-making in Modi Govt – Aug 6: Finance Minister says ‘no decision has been taken on MDR’. Aug 10: FM in Parliament says ‘No MDR framework has yet been finalised’. Sep 14: Notification is issued. Within 24 hrs, MDR charges introduced.” — Jairam Ramesh
Conflicting Reports & Gaps
Sources agree the September 14 2026 notification bars charges up to INR2,000, but differ on how to interpret its silence on higher-value transactions. The exact MDR rate, merchant eligibility and cost-pass-through mechanisms remain undefined.
What’s Next
NPCI is expected to issue an operational directive detailing the MDR structure in the weeks after the notification. If the directive permits charges, the October 15 start date would activate the merchant fee for qualifying transactions. Stakeholders—including merchants, consumer-rights groups and fintech firms—are monitoring the rollout for impacts on pricing, cash usage and the broader digital-payments landscape.