A merchant discount rate (MDR) fee of 0.4 percent per transaction will be charged to merchants for business transactions made above Rs. 2,000 through the Unified Payments Interface (UPI) or ‘RuPay’ debit cards.
For business transactions of Rs. 75,000 and above, a cap has been set at Rs. 300 per transaction.
A fixed fee of Rs. 5 per transaction has been set for essential sectors such as railways, telecommunications, and fuel distribution.
An MDR fee has been fixed at a low rate of 0.02 percent per transaction in capital markets, including mutual funds and stocks. This MDR fee collection system will come into effect from October 15.
Small businesses earning up to Rs. 1 lakh per month through UPI transactions have been fully exempted from the MDR fee. Similarly, no MDR fee will be charged on person-to-person (37%) money transfers.
The National Payments Corporation of India (NPCI) said that this decision was taken at the UPI and other services steering committee meeting, held in Delhi on Tuesday, which included 22 members, including representatives of banks and electronic payment service providers.
At the same time, the Central Government has already announced that no fee will be charged for 95 percent of UPI transactions made below Rs. 2,000.
With this move, the zero MDR collection practice that had been in effect since January 2020 has come to an end. Although this zero MDR policy was introduced with the aim of promoting digital payment usage, it is noteworthy that banks and fintech companies had long criticized it as unsustainable.
Bill passed
The Central government introduced the ‘Taxation and Other Laws Amendment Bill 2026’, which amends Section 10 of the ‘Payment and Settlement Systems Act, 2007’, that prohibits banks from levying service charges on electronic payment transactions including UPI, to enable them to charge fees based on the merchant discount rate (MDR). The bill has been approved by both Houses of Parliament.
U.S. trade representatives, who are engaged in bilateral trade agreement negotiations with India, have been continuously insisting that fees should be charged for electronic payment transactions, including UPI. In response to this pressure, the central government's policy is being completely overhauled. In the name of efforts to attract foreign capital, a provision to charge fees for UPI transactions has been included in this bill. Opposition parties alleged that this would affect customers.
Refuting this, Union Finance Minister Nirmala Sitharaman responded, “This bill does not propose imposing any fee or tax on customers for UPI and other electronic payment methods. Instead, this charge will be collected from merchants. Even then, MDR charges will not be levied on most commercial transactions, including ordinary and low-value payments. The MDR charge will apply only to a small number of merchants who carry out transactions above a specified limit.”
In this context, the central government on Monday issued a gazette notification regarding this MDR fee. It stated that, “An amendment has been made to Section 10 of the ‘Payment and Settlement Systems Act, 2007’ to enable the collection of charges on electronic payment transactions, including UPI, on the basis of Merchant Discount Rate (MDR). At the same time, merchants should not be charged MDR for transactions up to Rs. 2,000 made through the Unified Payments Interface (UPI) or ‘RuPay’ cards.”
Fixing the MDR fee
At the ‘UPI and Other Services Steering Committee’ meeting held in Delhi on Tuesday, the MDR fee rate to be charged from merchants for UPI transactions above Rs. 2,000 was decided. NPCI issued a notification regarding this.
It stated that companies providing payment transaction apps are prohibited from adding platform fees, and banks have been instructed not to allow merchants to pass on MDR fee costs to customers.
It was also reported that one-fifth of the funds in this new fee package have been decided to be allocated for expanding UPI for small businesses.
Public will be affected: Congress
Allegation repeated
By charging merchants a fee for UPI transactions, the general public, who are ultimately the customers, will be affected, the Congress party alleged once again.
Regarding this, Congress national president Mallikarjun Kharge said in a post on his X page on Tuesday, ‘While the central government had earlier said that no fee would be charged for UPI transactions, it has now been changed to say that MDR will not be charged for transactions up to Rs. 2,000.
The additional burden on businesses caused by MDR charges will be passed on to customers. At a time when inflation is rising, instead of providing relief to the public, the central government is exploring new ways every day to extract money from the pockets of ordinary consumers through price increases,’ he alleged.
Congress and BJP spreading lies: ‘The Congress party has been continuously spreading false news,’ the BJP hit back at Congress criticism regarding UPI transaction charges.
Regarding this, BJP spokesperson Pradeep Bhandari said, ‘The Congress is once again spreading fake news. The central government has clarified that the MDR fee for UPI transactions is only for merchants, not for customers. Moreover, 96 percent of UPI commercial transactions are carried out at amounts of Rs. 2,000 and below. No fee will be levied on these transactions,’ he said.