Govt to Ensure Merchants Absorb UPI MDR Charges, Not Pass Them to Consumers: Sources

September 17, 2026

New Delhi: Amid demands for a rollback of the 0.4 per cent Merchant Discount Rate (MDR) on select UPI payments, government sources on Thursday said the decision was taken after due consideration and that the government will closely monitor its implementation to ensure merchants do not pass the charges on to consumers.

“Efforts will be made to plug gaps in enforcement. Govt has held discussions with payment aggregators. Govt will closely monitor effective implementation to ensure that merchants do not pass on the charges to consumers,” sources were quoted as saying by news agency ANI.

The new MDR framework, announced by the National Payments Corporation of India (NPCI), will take effect from October 15, 2026. The 0.4 per cent MDR applies to specified person-to-merchant (P2M) UPI transactions above Rs 2,000, while person-to-person transactions remain free.

Govt Says No Pressure Behind UPI MDR Decision

Sources said the decision was taken after consultations with stakeholders and reiterated that the government was not under any pressure to introduce the 0.4 per cent MDR on select UPI transactions.

They also said the 0.02 per cent MDR for capital market transactions was introduced after discussions with SEBI, stock exchanges and other stakeholders.

The sources said reports of GST being imposed on UPI payments were false. They added that GST applicable to the MDR would be set off through input tax credit, while any related issue could be considered by the GST Council.

“We don’t see much increase in cash transactions due to MDR. We are confident that there will be no increase in cash transactions. Don’t expect UPI transactions to fall after the rollout on 15th October,” the sources said.

NPCI Promotes RuPay Debit Cards

The NPCI, which operates the UPI platform, issued a circular on September 15 providing for MDR on certain UPI transactions as part of a framework aimed at creating a sustainable revenue model for the digital payments ecosystem.

Sources said NPCI is also promoting RuPay debit cards, which have been kept free from MDR under the new framework.

“RuPay cards will have an edge over other cards,” the sources said.

What Are The New UPI Charges?

From October 15, a 0.4 per cent MDR will apply to specified person-to-merchant UPI payments above Rs 2,000. The charge will be borne by merchants rather than consumers and will be capped at Rs 300 for transactions of Rs 75,000 or more.

Person-to-person UPI payments will remain free, while UPI payments below Rs 2,000 will not attract the new MDR. The framework also provides exemptions for eligible small merchants.

Essential services such as railways, telecom, fuel and insurance will attract a flat Rs 5 fee per transaction above Rs 2,000.

Capital market transactions, including mutual funds and stockbroking, will attract a lower 0.02 per cent MDR, also capped at Rs 300.

Small merchants collecting up to Rs 1 lakh a month through UPI QR codes will remain exempt from the new charge. According to officials, this carve-out covers around 96 per cent of merchant transactions.

The government has also said that mechanisms will be put in place to prevent banks and payment service providers from directly or indirectly passing the MDR on to consumers.