Centre to ask banks’ body to ensure consumers don't pay MDR on UPI payments

The Centre will ask the Indian Banks’ Association (IBA) to undertake awareness campaigns and firm up a mechanism to ensure that a proposed charge on select Unified Payments Interface (UPI) transactions isn’t passed on to consumers, according to two senior finance ministry officials.

The planned outreach by the bankers’ body aims to “put the truth in the public domain” and allay any misconceptions about the MDR.

The Centre is also hopeful that the Goods and Services Tax Council will take a reasonable view on whether to impose such a tax on the merchant fee on the UPI transactions, the officials said.

Quick answers to key questions

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QUESTIONS

From October 15, a 0.4% MDR will be levied on person-to-merchant UPI transactions exceeding ₹2,000, with a maximum charge capped at ₹300 for transactions of ₹75,000 or above.

The MDR is reintroduced to ensure the financial sustainability of the UPI ecosystem and to fund necessary infrastructure such as servers, cybersecurity, and customer support.

While the MDR applies to merchants, the government is directing banks to ensure that these costs do not get passed on to consumers, especially for transactions below ₹2,000.

Person-to-person UPI transactions and person-to-merchant transactions below ₹2,000 will remain free from the MDR, along with small merchants under the zero-MDR structure.

Most merchants, particularly those with annual revenues under ₹1 crore, are not expected to pass the MDR charges to consumers. Approximately 96% of transactions will remain unaffected by this fee.

From 15 October, a 0.4% merchant discount rate (MDR) will be levied on specified person-to-merchant (P2M) UPI transactions exceeding ₹2,000, with the maximum charge capped at ₹300 for transactions of ₹75,000 or above. Importantly, only a flat MDR of ₹5 will be charged on UPI transactions above ₹2,000 in essential sectors such as railways, telecom, insurance, fuel, and farm inputs.

Person-to-person UPI transactions will remain free, and so will P2M transactions up to ₹2,000. Around 96% of the UPI merchant transactions will remain unaffected, according to a finance ministry estimate.

The proposed MDR on the specified transactions won’t be sufficient to cover the costs of running the UPI ecosystem, said the officials cited above, on condition of anonymity.

The finance ministry is also planning to engage with traders’ bodies to allay any misplaced fears and urge them not to refuse UPI payments, the officials added.

“The IBA will be asked to undertake campaigns to put out the truth in the public domain and address misplaced fears among stakeholders,” one of the officials said.

‘MDR not a govt levy’

The MDR isn’t a tax or a levy imposed by the government, so the Centre won’t gain anything out of it, the official stressed. While no fuss is made in India over credit card fees, the levy of an MDR on select transactions is being turned into an unnecessary controversy, according to the officials.

As much as 40% of the proposed MDR for eligible UPI merchant transactions will go to the customer's bank, 30% to the merchant's bank or payment gateway, 20% to the UPI app, and 10% to the sponsoring bank of the UPI app, the officials explained.

Why the charge?

The officials said the MDR was proposed to make the country's indigenous UPI ecosystem financially sustainable over the long term and to expand its reach deeper into rural and semi-urban India.

It will be used to fund servers, payment infrastructure, cybersecurity, fraud prevention and customer support.

India had 554.9 million UPI users as of June 2026, leaving substantial room for expansion, they said.

‘MDR not an arbitrary decision’

The MDR proposal isn’t taken arbitrarily, the officials said, adding that it follows deliberations in the UPI and Services Steering Committee, involving banks and other stakeholders.

The Parliamentary Standing Committee on Finance, in its March 2026 report, had also called for a viable revenue mechanism to ensure UPI's long-term financial sustainability, they said.

“Such a charge is also not unique to India. Merchant payment charges already exist across credit cards, Visa/Mastercard debit cards and payment systems globally,” the first official said.

Merchant or payment-acceptance charges are used in several major faster-payment ecosystems, they said. For instance, the charge is on the order of 0.5% in the US, 1.3% in Singapore, up to 1.99% in South Korea, and about 0.4% in China.