Finance Minister Nirmala Sitharaman has dismissed opposition allegations—that the decision to levy a 0.4% Merchant Discount Rate (MDR) on certain UPI transactions exceeding ₹2,000 was made under external pressure—as completely baseless. She stated that the move was intended to professionalize the payment ecosystem.
Speaking to the news agency PTI, Sitharaman emphasized that the decision was purely professional and was taken jointly by the National Payments Corporation of India (NPCI), payment banks, and merchant banks, rather than being imposed by the government. She clarified that MDR is not a tax and the proceeds would not go to the government. The Finance Minister remarked that the opposition is merely seeking issues and making allegations without fully understanding the matter.
Who receives the fee revenue?
Sitharaman said, “It is neither a tax nor a cess or a surcharge. The amount collected from this will not go into India’s Consolidated Fund.” The collected amount will be distributed among banks and other entities within the UPI ecosystem: 40% of the collected MDR will go to the customer’s bank, 30% to the payment gateway, 20% to the UPI app, and the remaining 10% to the UPI app’s sponsor bank.
From October 15, an MDR of 0.4% will apply to person-to-merchant UPI payments exceeding ₹2,000. This charge will be levied on the merchant (shopkeeper), not the consumer; additionally, for transactions of ₹75,000 or more, the charge will be capped at ₹300. Peer-to-peer payments and most routine merchant payments will remain free of charge, just as before.
MDR rates: Who pays how much? A flat fee of ₹5 will be charged on every transaction exceeding ₹2,000 for essential services such as railways, telecom, fuel, and insurance. For capital market transactions (mutual funds, stock broking), a lower rate of 0.02 percent will apply, subject to a maximum cap of ₹300.
Small merchants accepting payments of up to ₹1 lakh per month via UPI QR codes will remain completely exempt from any new charges; this means approximately 96 percent of merchant transactions will remain unaffected.
Order issued on September 15
The NPCI, the entity operating the UPI platform, issued a circular on September 15 regarding the imposition of MDR on certain UPI transactions. The objective of this move is to create a sustainable revenue infrastructure for the digital payment ecosystem.
A special fund will be created to promote the use of UPI among small merchants, into which 5 percent of the total MDR collections will be deposited.
This initiative will expand the reach of UPI, encourage its continued usage, and rapidly increase the participation of small businesses in India’s digital payment ecosystem.
