The proposed merchant discount rate (MDR) on selected UPI payments has drawn opposition from traders ahead of its implementation on October 15.
The Chamber of Trade and Industry (CTI) has urged Finance Minister Nirmala Sitharaman to withdraw the MDR on eligible person-to-merchant UPI transactions above ₹2,000, arguing that the charge could increase costs for shopkeepers, traders and entrepreneurs and discourage the use of UPI for higher-value purchases.
CTI chairman Brijesh Goyal said the decision has caused concern among nearly six crore traders and business owners across the country.
Under the new framework, eligible person-to-merchant UPI transactions above ₹2,000 will attract an MDR of 0.4%.
Key provisions include:
MDR rate: 0.4% on eligible merchant payments above ₹2,000
Maximum charge: ₹300 per transaction
Person-to-person payments: Continue to remain free irrespective of value
Small merchants: Those receiving up to ₹1 lakh per month through UPI QR codes remain exempt
Customer charge: The government says MDR cannot be passed on to consumers
The charge is therefore intended to be borne by merchants accepting eligible UPI payments.
The traders’ body argues that while only a relatively small proportion of UPI transactions are above ₹2,000, they account for a substantial share of the total value processed through the payment network.
According to figures cited by CTI:
UPI processed around 24,162 crore transactions worth nearly ₹314 lakh-crore in FY2025-26
Merchant transactions accounted for around ₹198 lakh-crore
Transactions above ₹2,000 represented only about 4% of total transaction volume
However, such transactions accounted for nearly ₹131 lakh-crore in value
CTI believes merchants may become reluctant to accept UPI for larger purchases once the MDR comes into force.
The organisation has also estimated that UPI payments above ₹2,000 could decline sharply after the introduction of the charge, potentially encouraging some merchants and customers to return to cash for high-value transactions.
At the proposed MDR rate of 0.4%, the charge will increase with the transaction value until it reaches the ₹300 ceiling.
For instance:
₹3,000 payment: ₹12 MDR
₹10,000 payment: ₹40 MDR
₹50,000 payment: ₹200 MDR
₹75,000 and above: Maximum ₹300 MDR
Certain sectors will have a different charging structure. Essential services including railways, telecom, fuel and insurance will attract a flat ₹5 charge on eligible transactions above ₹2,000.
Capital market transactions, including payments linked to mutual funds and stockbroking, will attract a lower MDR of 0.02%, subject to a maximum of ₹300.
NPCI issued the circular introducing MDR on certain UPI transactions on September 15.
The Centre has maintained that the MDR is neither a tax nor a government levy.
Finance Minister Nirmala Sitharaman has said the money collected through MDR will not go to the Consolidated Fund of India and that the charge is linked to services provided by banks, payment gateways, UPI apps and other participants in the payment ecosystem.
The government has also stressed that merchants should not transfer the cost to customers.
According to government sources, the proposed distribution of MDR collections is:
40%: Customer’s bank
30%: Payment gateway
20%: UPI app
10%: Sponsoring bank of the UPI app
The Indian Banks’ Association is also expected to conduct an awareness campaign on the new charging structure.
Another issue is the 18% GST applicable to merchant fees. Government sources have indicated that the GST Council, scheduled to meet on October 7, could examine the GST treatment of MDR on UPI transactions above ₹2,000.
Importantly, GST will apply to the MDR amount and not to the full purchase value. The government is also considering a dedicated fund using 5% of total MDR collections to promote UPI adoption among smaller merchants.
With the October 15 implementation date approaching, traders are pressing the Centre to reconsider the MDR framework, particularly for higher-value payments.
The government, however, maintains that small merchants and the overwhelming majority of everyday UPI transactions will continue to remain outside the charge, while consumers will not have to pay MDR directly.
