Full Breakdown
New Merchant Discount Rate (MDR) Framework for UPI Transactions Sparks Political Row
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Background & Context
Since its 2016 launch, India’s Unified Payments Interface (UPI) has operated under a zero-merchant-discount-rate (MDR) regime for person-to-merchant (P2M) payments. The Parliamentary Standing Committee on Finance warned that the zero-MDR model “puts pressure on government finances” and recommended a tiered revenue mechanism, noting a mismatch between the INR2,000 cr budgetary allocation for 2026-27 and the industry’s estimated INR20,700 cr annual operating cost.
Core Event: Introduction of a 0.4 % MDR
On 14 Sept 2026 the Finance Ministry issued a notification authorising a 0.4 % MDR on specified merchant UPI transactions above INR2,000. The fee is capped at INR300 for transactions of INR75,000 or more and applies only within the merchant-payment ecosystem. Person-to-person transfers and merchant payments up to INR2,000 remain free. The framework is scheduled to take effect on 15 Oct 2026.
Data & Statistics
- UPI processed 24.5 bn transactions in Aug 2026.
- Over 95 % of merchant payments are below the INR2,000 threshold, leaving roughly 96 % of P2M transactions unaffected (Finance Ministry).
- Transactions above INR2,000 represent about 4 % of P2M volume but roughly two-thirds of total UPI value.
- Annual cost of running the UPI ecosystem is estimated at INR20,000 cr; the RBI transferred about INR2.87 lakh cr to the government in FY 2025-26.
Official Statements & Responses
Banks have been instructed to prevent merchants from passing the fee on to consumers and to ensure “no hidden fees” by UPI apps. The National Payments Corporation of India (NPCI) said the modest fee on high-value merchant transactions will be reinvested to strengthen the UPI ecosystem and expand coverage in Tier III–VI towns.
Criticism & Opposition
Congress Leader of Opposition Rahul Gandhi demanded an immediate rollback, labeling the MDR a “UPI tax” and accusing Prime Minister Narendra Modi of “prostrating” before the United States. Congress digital-media head Supriya Shrinate argued the fee would benefit U.S. payment firms such as Visa and Mastercard and could raise prices for Indian consumers. Congress general secretary Jairam Ramesh warned the new law could pave the way for broader fees on UPI transactions.
Conflicting Reports & Gaps
- The government maintains that consumers will not bear the MDR, while opposition leaders assert merchants will pass the cost to shoppers.
- Some outlets report the MDR as a “tax,” whereas the ministry insists it is a fee distributed among banks and payment-service providers.
- Legal challenges have been filed in the Supreme Court; the outcome remains pending.
Timeline
- 6 Aug 2026: Finance Minister Nirmala Sitharaman said no MDR decision had been taken.
- 10 Aug 2026: Same minister reiterated no finalized framework.
- 14 Sept 2026: Notification authorising the 0.4 % MDR issued.
- 15 Sept 2026: Rahul Gandhi and Congress president Mallikarjun Kharge publicly condemned the move.
- 16 Sept 2026 (scheduled): Further political statements and media coverage.
- 15 Oct 2026 (scheduled): MDR to become effective.
What’s Next
A petition challenging the MDR has been lodged in the Supreme Court; a decision is expected before the October 15 implementation date. The Finance Ministry has indicated no intention to reverse the policy and plans to monitor merchant compliance and consumer impact after rollout.