UPI payments above ₹2,000: Who will pay the 0.4% MDR? FM Sitharaman clarifies
The proposed Merchant Discount Rate (MDR) on certain UPI payments above ₹2,000 has raised concerns among users, merchants, and other stakeholders. To quell such concerns, Finance Minister Nirmala Sitharaman has now clarified that the charge will be levied on merchants and will not be passed on to consumers.
According to a PTI report, Sitharaman said on 25 September that “the MDR is not a tax, cess or surcharge, and that the money collected will not go to the government”.
What is the new UPI MDR?
In accordance with the new framework, a 0.4% will apply starting from 15 October 2026 to specified person-to-merchant UPI transactions above ₹2,000. Furthermore, the charge is capped at ₹300 for transactions of ₹75,000 or more. Person-to-person UPI payments will remain free.
The government has also stated that about 96% of merchant UPI transactions will remain unaffected, while only small merchants with monthly UPI QR collections of up to ₹1 lakh are exempt from the new MDR, as per a detailed press release recently issued by the Press Information Bureau.
What did Nirmala Sitharaman say?
PTI quoted the Finance Minister as saying, “I don’t think customers are worried because we are clearly saying that this is not going to the consumer. There are, of course, I’m sorry to say, people who have not understood this properly… It is not on the consumer.
The MDR charge on the ₹2,000 payment”> ₹2,000 payment is borne by the merchant, who already does so for other cards, the Finance Minister said. And, she added, with the other cards also, they are not passing it on to the consumer.
“There may be many things they do, such as making offers or whatever. So, strictly speaking, this applies to many other cards. I am justifying it from that perspective. I am saying it is not a tax, it is not a cess, it is not a surcharge, and the collection is not coming to the Government of India at all…”
Therefore, the key issue for day-to-day UPI users, consumers, and associated stakeholders is whether merchants actually absorb the MDR or pass the cost on indirectly. The government has stated that banking institutions will work with merchants and industry bodies to prevent such a burden on customers.
