Union Finance Minister Nirmala Sitharaman has clarified the position regarding Merchant Discount Rate (MDR) charges on UPI payments. He said that MDR should not be considered as tax, cess or surcharge and the amount received from it is not going to the treasury of the Government of India.
UPI MDR Charge: Amidst the ongoing discussions regarding Merchant Discount Rate (MDR) on Unified Payments Interface i.e. UPI, Union Finance Minister Nirmala Sitharaman has clarified the situation. He said that MDR is neither a tax, cess or surcharge nor will the money received from it go to the Consolidated Fund of the Government of India. This charge will be distributed among the different entities involved in the payment ecosystem.
As per the existing framework of the government, MDR will be applicable on select Person-to-Merchant (P2M) UPI transactions from October 15, 2026. In general eligible transactions, MDR will be 0.4% on payments above ₹2,000, while it will be limited to a maximum of ₹300 on transactions of ₹75,000 or more.
What is UPI MDR and where will the money go?
The Finance Minister clarified that MDR is not a tax imposed by the government. This is a charge levied in the merchant payment ecosystem, in which NPCI, banks, payment service providers, payment application providers and other ecosystem participants have a role. According to the government, the amount received from MDR will be distributed among the participants of the payment ecosystem, to support the operation and expansion of the UPI infrastructure. Therefore it should not be seen as Government Revenue.
Will the customer have to pay MDR on UPI payment?
It has been clarified by the government that the direct burden of MDR is not to be imposed on the consumer. The Finance Minister also said that the charge on eligible UPI merchant payments above ₹2,000 will be on the merchant side. This means that there is no provision for the customer to pay separate MDR charge while making UPI payment. However, arrangements are being made to monitor its treatment in the merchant-side cost and payment ecosystem.
MDR will not be levied on Person-to-Merchant (P2M) UPI transactions up to ₹2,000. Apart from this, zero-MDR framework will also continue for small merchants. According to the government, about 96% of P2M UPI transactions will be unaffected by this change. Person-to-Person i.e. P2P transactions will also be free regardless of the amount.
Relief to small merchants also
A separate provision has also been kept to protect small businessmen from the impact of MDR. Small merchants whose UPI QR receipts are up to ₹1 lakh in a month will be exempted under the zero-MDR framework. Its objective is to avoid additional pressure of digital payment cost on street vendors, neighborhood shops and other small businessmen.
On the opposition's criticism regarding MDR, the Finance Minister said that it is not correct to call this system a tax imposed by the government. He said that MDR is a professional arrangement related to the payment ecosystem and its objective is to make the UPI infrastructure financially sustainable. He also said that regarding this issue, an impression is being created that the government has imposed some new charge on the consumers, whereas the government says that the consumer will not have to pay MDR.
When will the new rule regarding UPI MDR come into effect?
The new MDR framework is scheduled to come into effect from 15 October 2026. MDR has been set at 0.4% on payments above ₹2,000 in general eligible P2M transactions. The maximum MDR on transactions of ₹75,000 and above will be ₹300. There is a provision of flat ₹5 MDR on eligible transactions above ₹2,000 for some essential sectors like railways, telecom, insurance, fuel and agricultural inputs. A separate MDR rate is prescribed for capital market transactions.