UPI MDR: No rollback of 0.4% fee above Rs 2,000; govt says move will make UPI self-sustainable

The government has no plans to reconsider the proposed 0.4% Merchant Discount Rate (MDR) on UPI merchant transactions above Rs 2,000, government sources said, amid criticism from Opposition parties, traders and shopkeepers. The new MDR will take effect from October 15, 2026.

A top government official, when asked whether the proposed charge could be rolled back, said the decision had already been taken and there was no question of reversing it, PTI reported on Wednesday.

Government says MDR will strengthen UPI ecosystem

Government sources said the decision to introduce MDR was taken in the broader interest of the UPI ecosystem, particularly to strengthen its safety, security and long-term financial sustainability.

The government has also said that incentives will be provided to support the further expansion of UPI in rural and semi-urban areas and help the payment system remain competitive. The framework, it said, will ensure that the vast majority of UPI payments continue to remain free.

The move has faced opposition from several quarters, with traders, shopkeepers and political parties criticising the proposed fee.

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Customers will not pay the MDR

The Finance Ministry has clarified that the 0.4% MDR is a charge within the merchant payment ecosystem and will not be directly levied on customers making UPI payments.

Everyday person-to-person transactions and small-value payments will remain outside the new MDR framework. Individuals will also continue to have unlimited free usage of UPI, with no monthly quotas, transaction-volume restrictions or tiered caps on free payments.

This means that the proposed charge is targeted at eligible merchant transactions above the Rs 2,000 threshold rather than ordinary consumer-to-consumer transfers.

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Zero-MDR model faced sustainability concerns

The government has pointed to concerns over the financial sustainability of the zero-MDR model. Parliament’s Standing Committee on Finance, in its 32nd report, had highlighted the pressure that the zero-MDR regime places on government finances and its potential impact on the ecosystem’s ability to invest in long-term infrastructure.

The committee had said a viable revenue mechanism was important for ensuring the financial sustainability of UPI without placing a perpetual burden on the government exchequer. It also noted that the government was providing around Rs 2,000 crore annually to support the incentive scheme associated with the zero-MDR policy.

UPI enters a new phase

The introduction of the 0.4% MDR marks a significant change for UPI after nearly six years of a zero-MDR framework. The government has sought to balance the new merchant-side charge with continued free access for consumers and incentives aimed at expanding digital payments.

With the new rules coming into effect from October 15, the focus will now be on how merchants, payment service providers and the wider UPI ecosystem adapt to the revised fee structure.

(With inputs from PTI)

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