False, baseless, misleading: Govt denied UPI MDR last year. Now it's official

In June 2025, the Finance Ministry issued a statement on X dismissing reports that a Merchant Discount Rate would be charged on UPI transactions. The government has now introduced a 0.4% MDR on select UPI merchant payments above Rs 2,000 from October 15, 2026.Revenue from MDR to fund UPI infrastructure, cybersecurity, and rural digital payments. The government had dismissed reports of a Merchant Discount Rate (MDR) being imposed on UPI transactions as “completely false, baseless, and misleading” just over a year ago. Now, it has formally introduced an MDR of 0.4% on select UPI merchant transactions above Rs 2,000.The sharp change in policy comes after months of concerns from the digital payments industry over the sustainability of the zero-MDR model. The new framework will come into effect from October 15, 2026.Under the new system, merchants will pay 0.4% on Person-to-Merchant (P2M) UPI transactions above Rs 2,000, with the charge capped at Rs 300 for transactions of Rs 75,000 and above.Payments up to Rs 2,000 will continue to carry zero MDR. Person-to-person (P2P) transactions will also remain free. The government's new position is therefore markedly different from what the Finance Ministry said in June 2025, when it rejected reports that MDR was being considered for large-ticket UPI payments.WHAT THE GOVERNMENT SAID LAST YEAR (Photo: News on Air) On June 11, 2025, the Finance Ministry took to X to reject reports that MDR would be imposed on UPI transactions. “Speculation and claims that the MDR will be charged on UPI transactions are completely false, baseless, and misleading,” the ministry said.It went on to say that such “baseless and sensation-creating speculations” caused “needless uncertainty, fear and suspicion” among citizens.“The Government remains fully committed to promoting digital payments via UPI,” the ministry said in the post.The statement came after reports that the Centre was considering introducing MDR on large-ticket UPI transactions, with a threshold of Rs 3,000 being discussed in those reports. The Finance Ministry's response was categorical: there would be no MDR on UPI transactions.At the time, the government was continuing with the zero-MDR model for UPI. In March 2025, the government had also approved a Rs 1,500 crore incentive scheme to promote low-value BHIM-UPI merchant transactions.INDUSTRY HAD ALREADY RAISED THE MDR QUESTIONThe debate, however, had not gone away.In March 2025, the Payments Council of India (PCI), an industry body representing digital payments companies, had asked the government to reconsider the zero-MDR policy for UPI and RuPay debit cards.The industry body had proposed a 0.3% MDR on UPI transactions for large merchants, arguing that the zero-MDR structure was putting pressure on the financial sustainability of the digital payments ecosystem.PCI had also argued that the government incentives being provided to support the ecosystem were not enough to meet the cost of maintaining and expanding digital payments infrastructure.So, even as the government denied in June 2025 that it was planning to impose MDR, the question of how to fund the rapidly expanding UPI ecosystem was already being raised by the industry.NOW, THE POLICY HAS CHANGEDMore than a year after the Finance Ministry's denial, the government has now put out a detailed framework for MDR on select UPI merchant transactions.The new framework introduces a 0.4% MDR on P2M transactions above Rs 2,000. For transactions worth Rs 75,000 and above, the fee will be capped at Rs 300.The threshold is also different from the Rs 3,000 level mentioned in reports that the government denied in June 2025.For example, a Rs 3,000 transaction will now attract Rs 12 as MDR, while a Rs 50,000 transaction will attract Rs 200. A Rs 1 lakh transaction, which would work out to Rs 400 at 0.4%, will instead attract the maximum Rs 300 fee.But the new charge is not universal.P2P transfers will remain free, while UPI payments up to Rs 2,000 will not attract MDR. The government says transactions up to Rs 2,000 account for more than 95% of UPI's P2M transaction volume.WHY HAS THE GOVERNMENT CHANGED ITS STANCE?The government on Wednesday clarified why it has introduced a Merchant Discount Rate (MDR) on select UPI merchant transactions, mentioning the move is aimed at making India's digital payments ecosystem financially sustainable as transaction volumes continue to surge.In a post explaining the new framework, the Ministry said UPI had processed 24.5 billion transactions in August 2026 alone and argued that a small fee on high-value merchant transactions was needed to help fund the infrastructure behind the system."To keep this system self-sustainable, a small fee on high-value merchant transactions helps fund better infrastructure and cybersecurity, support for small merchants in Tier III-VI towns and rural areas, and awareness and incentives to expand UPI adoption," the Ministry said.The government's primary argument is that the cost of running UPI has grown along with its scale.GOVERNMENT SAYS MDR WILL FUND UPI ITSELFThe Finance Ministry has also stressed that the money generated through MDR is intended to stay within the UPI ecosystem.According to the ministry, the revenue will be used for infrastructure resilience, innovation, cybersecurity and customer service.The ministry has specifically pointed to cybersecurity as one area that will need greater investment as UPI expands.It says MDR revenue can support cybersecurity infrastructure, AI-based fraud detection and encryption upgrades.This marks a shift from the earlier model in which the government used incentives to support the ecosystem while maintaining zero MDR.The new approach is that at least some of the cost of running and expanding the system will be recovered from higher-value commercial transactions.SMALL MERCHANTS WILL REMAIN EXEMPTThe government has, however, tried to keep small businesses outside the new charge.Merchants under the P2PM category receiving up to Rs 1 lakh a month through UPI QR codes will continue to have zero MDR.The government says the exemption is intended to protect small vendors and businesses in the unorganised retail sector.It is also proposing a dedicated fund to support digital payment infrastructure in Tier III to Tier VI centres, including the northeastern states, Jammu and Kashmir and Ladakh.The fund will provide financial assistance for merchant onboarding and incentives to encourage UPI usage among small merchants, particularly in rural areas and smaller towns.The detailed framework for the fund is to be finalised in consultation with the RBI within three months.CONSUMERS WILL NOT PAY THE MDRDespite the change, the government is maintaining that consumers will not be charged for UPI payments.The Finance Ministry's FAQ says P2P transfers will remain free irrespective of the amount. UPI apps will also not be allowed to impose a separate platform fee on UPI payments.The government has also said merchants cannot pass the MDR on to customers while accepting UPI payments.This means the new cost is designed to sit on the merchant side rather than directly on the consumer side.- EndsPublished On: Sep 16, 2026 21:02 IST