R. Rangabashyam
As a 0.4 percent merchant discount rate (MDR) is set to be charged from October 15 on UPI transactions made to merchants above Rs. 2,000, the question of who will bear this fee has arisen among merchants.
According to the new procedure announced by the National Payments Corporation of India (NPCI), a 0.4 percent MDR will be charged on person-to-merchant UPI transactions above Rs. 2,000. For transactions of Rs. 75,000 and above, a maximum fee of Rs. 300 will be charged. At the same time, this MDR will not apply to business transactions up to Rs. 2,000 or to person-to-person money transfers. As a result, if a payment of Rs. 10,000 is made via UPI, the merchant will incur an MDR cost of Rs. 40. For a Rs. 75,000 transaction, it will be Rs. 300. For amounts above that as well, the maximum limit will remain Rs. 300.
No charge for consumers: The Central Government has stated that the new MDR will not be collected directly from consumers. Merchants must bear this charge. It has also been stated that banks have been instructed not to pass this charge on to customers. However, the question has arisen whether the additional cost incurred by merchants will ultimately be reflected in the price of goods or service charges.
In this regard, Venkatachalam, the All India General Secretary of the All Bank Employees Federation, said: The Central Government’s recent Taxation and Other Laws (Amendment) Bill, 2026, removes the legal guarantee that keeps UPI transactions free. This opens the way for merchant discount rate MDR charges. In the future, this can easily be extended to all UPI transactions.
It is not right for the government to say that this is the only way to make UPI financially sustainable. The Reserve Bank of India has the financial capacity to fund the UPI ecosystem in a sustainable manner without imposing charges on merchants or consumers. For this, in 2025-26, the Reserve Bank of India transferred Rs. 2.86 lakh crore to the government. Only a small portion of this surplus would be needed to support this important digital public infrastructure. Although it is said that only merchants should bear merchant discount rate MDR charges, those charges will be added to the sale price and, in the end, ordinary people will have to bear them. To avoid these charges, which are currently legally permitted, he says people may once again have to buy or sell goods in cash.
According to Thirumal (a rice wholesaler): GST tax is being levied on rice. Since a fee will now be charged for UPI transactions, there has been no choice but to increase the price of a sack of rice. He said this additional cost will ultimately be passed on to customers.
The president of the Federation of Tamil Nadu Traders’ Associations, A.M. Vikramaraja, said: For traders who are already struggling due to various regulatory and operational costs, this new fee will create an additional financial burden. We will not pay this fee out of our own pockets. We will collect it from customers themselves. From now on, we will stop encouraging digital payments and insist on payment in cash. Traders are already under pressure due to various compliance requirements, including GST, FSSAI, municipal regulations, and labor department rules. We are already in a position of surrendering to large corporations. What guarantee is there that fees will not be imposed even on small transactions in the future? How can small traders do business?’ he asked.
Large retailers say that a 0.4 percent fee is not large enough to pass on to customers, but after demonetization, UPI, along with credit and debit cards, has become deeply rooted in retail trade, and later spread to smaller towns as well. If customers want to choose the UPI method, we have no right to ask them to use another payment method. The 0.4 percent fee (merchant discount rate) is a very small amount that does not have a major impact. We will bear this charge ourselves; it will not be passed on to customers, they say.
Impact on the hotel sector too: Chennai Hotels Association president M. Ravi said that the new MDR regime will affect hotels of various sizes as customers increasingly use UPI to pay for food and other services in hotels.
Why MDR?: As the number of UPI transactions continues to rise, the government has explained that a steady source of revenue is needed to cover the costs of infrastructure, security, maintenance, and technological upgrades. The government said that the current system depends on government incentives, and that a new revenue model is essential to make the UPI framework financially sustainable in the long term. The new MDR system is estimated to generate around Rs. 15,000 crore in revenue annually.
Thus, the new framework cannot be considered a charge on every UPI transaction made by the public. At the same time, how the MDR cost borne by merchants will be reflected in the prices of goods and services remains an important issue to watch after the framework comes into effect.
What changes for UPI users?
Person-to-merchant transactions up to Rs.2,000 - no MDR.
Person-to-merchant transactions above Rs.2,000 - 0.4% MDR.
Rs.75,000 and above - maximum MDR of Rs.300.
Person-to-person money transfers - no MDR.
Government directs that charging MDR directly from consumers is not permitted.
Effective date - October 15, 2026.
From Rs.2,000, how much MDR?
Amount paid via UPI 0.4% MDR Maximum charge for the merchant
Rs.2,000 Rs.8 Rs.8
Rs.5,000 Rs.20 Rs.20
Rs.10,000 Rs.40 Rs.40
Rs.25,000 Rs.100 Rs.100
Rs.50,000 Rs.200 Rs.200
Rs.75,000 Rs.300 Rs.300
Rs.1 lakh Rs.400 Rs.300