Full Breakdown
Government Stands Firm on New UPI Merchant Discount Rate
By Drooid · · How we work
Core Event
The Union government has announced that, effective October 15 2026, a 0.4 % Merchant Discount Rate (MDR) will apply to person-to-merchant (P2M) UPI transactions exceeding INR2,000. The charge is capped at INR300 for payments of INR75,000 or more. A flat MDR of INR5 will apply to railways, telecom, insurance and fuel when the transaction value is above INR2,000. The fee is borne entirely by merchants; consumers will continue to use UPI without a direct charge.
Background & Context
The zero-MDR regime, introduced in January 2020, has been funded largely by banks, fintech firms and the government, with annual costs estimated at roughly INR2,000 crore. The government says the new framework is intended to make the UPI ecosystem financially self-sustaining while preserving safety and inclusivity.
Data & Statistics
- More than 95 % of merchant payments are below the INR2,000 threshold, so most transactions remain charge-free.
- Approximately 96 % of all P2M transactions will be unaffected, according to the finance ministry.
- UPI handles over 55 crore users and processes around 24,000 crore transactions worth INR314 lakh crore annually (2025-26 data).
Official Statements & Responses
A senior government official told PTI there is “no question of reversing” the decision. The RBI reiterated that person-to-person transfers and small-merchant payments (up to INR1 lakh per month via QR codes) will remain free.
Criticism & Opposition
Congress leaders have called the MDR a “tax” and accused Prime Minister Narendra Modi of yielding to U.S. pressure. BJP spokesperson Pradeep Bhandari countered that 96 % of P2M transactions are below INR2,000 and remain charge-free. Congress MP Jairam Ramesh questioned the rationale for the 0.4 % rate, asking if it is meant to enable U.S. card companies to compete with UPI. Former BharatPe co-founder Ashneer Grover argued the levy should be called a “tax” and challenged its logic.
Legal Challenge
A public-interest litigation was filed on September 15 by advocate Anjan Datta, seeking to quash the September 14 notification that introduced the MDR. The petition alleges the framework lacks statutory safeguards, transparency and public consultation, and could disproportionately affect low-margin merchants.
Why It Matters
The MDR shifts part of the infrastructure funding burden from banks and fintech firms to merchants who benefit from UPI’s adoption. Proponents say a sustainable revenue stream is needed as transaction volumes are projected to rise sharply. Critics warn even a modest fee could be passed on to end-users, eroding UPI’s cost advantage.
What’s Next
The MDR framework takes effect on October 15 2026. The Supreme Court will consider the PIL filed on September 15, with a decision expected before the implementation date. The finance ministry has indicated that banks will be monitored to prevent any pass-through of the charge to consumers.