Center to ask banking authority to ensure consumers do not pay MDR on UPI payments | Today’s news
According to two senior finance ministry officials, the Center will ask the Indian Banks Association (IBA) to conduct awareness campaigns and put in place a mechanism to ensure that the proposed charge on select Unified Payments Interface (UPI) transactions is not passed on to consumers.
The bankers’ body’s planned intervention aims to “bring the truth into the public domain” and dispel any misconceptions about the MDR.
The Center also hopes that the Goods and Services Tax Board will take a judicious view on whether to impose such a tax on the merchant charge for UPI transactions, officials said.
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From October 15, 0.4% MDR will be charged on UPI transactions between individual merchants exceeding ₹2,000, with a maximum charge capped at ₹300 for transactions worth ₹75,000 or more.
The MDR is being reintroduced to ensure the financial sustainability of the UPI ecosystem and to fund necessary infrastructure such as servers, cyber security and customer support.
While the MDR applies to merchants, the government is directing banks to ensure that these costs are not passed on to consumers, especially for transactions below ₹2,000.
Individual-to-individual and merchant-to-merchant transactions below ₹2,000 will remain MDR-free, as will small merchants with a zero MDR structure.
Most traders, especially those with annual revenues of less than ₹1 crore, are expected to pass on MDR charges to consumers. Approximately 96% of transactions will remain unaffected by this fee.
From October 15, UPI will be over-the-top for specific merchant-to-merchant (P2M) transactions ₹2,000, with maximum recharge ₹300 for transactions amounting to ₹75,000 or more. Importantly, only flat MDR ₹5 will be charged for UPI transactions above ₹2,000 in core sectors like railways, telecom, insurance, fuel and agricultural inputs.
Person-to-person UPI transactions will remain free, as will P2M transactions up to the above ₹2,000. According to the finance ministry’s estimate, around 96% of UPI business transactions will remain unaffected.
Read also | UPI MDR to push merchants with larger baskets, spare others
The proposed MDR amount on the said transactions will not be enough to cover the cost of running the UPI ecosystem, the above officials said on condition of anonymity.
The finance ministry also plans to interact with merchant authorities to allay any misplaced concerns and urge them not to reject UPI payments, the officials added.
“The IBA will be asked to carry out campaigns to publicly reveal the truth and address misplaced concerns among stakeholders,” said one of the officials.
“MDR is not a government levy”
The MDR is not a tax or levy imposed by the government, so the Center will not gain anything from it, the official pointed out. While there is no fuss about credit card charges in India, levying MDR on select transactions is turning into an unnecessary controversy, according to officials.
Read also | UPI MDR Charges Monitoring Center Daily from 15th October
Up to 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, officials explained.
Why the fee?
Officials said the MDR was designed to make the original UPI ecosystem in the country financially sustainable in the long term and to extend its reach deeper into rural and semi-urban India.
It will be used to fund servers, payment infrastructure, cyber security, fraud prevention and customer support.
India had 554.9 million UPI users as of June 2026, leaving considerable room for expansion, they said.
“MDR is not an arbitrary decision”
The MDR proposal is not being taken arbitrarily, officials said, adding that it follows discussions in the UPI and Services Steering Committee involving banks and other stakeholders.
The Parliamentary Standing Committee on Finance, in its March 2026 report, also called for a viable revenue mechanism to ensure UPI’s long-term financial sustainability, they said.
Read also | NPCI set to break UPI AutoPay lock
“Such a fee is also not unique to India. Merchant payment fees already exist across credit cards, Visa/Mastercard debit cards and payment systems worldwide,” the first official said.
Merchant or payment acceptance fees are used in several major faster payment ecosystems, they said. For example, the fee is on the order of 0.5% in the US, 1.3% in Singapore, up to 1.99% in South Korea and around 0.4% in China.
