Centre Rules Out Rollback of UPI MDR Fee as Opposition and Legal Challenge Mount

The government has ruled out withdrawing its decision to levy a 0.4 per cent merchant discount rate (MDR) on person-to-business UPI transactions above Rs 2,000, with officials stating there is no question of reversing the order. The charge is set to take effect from October 15.

The announcement, made through a revised merchant pricing framework confirmed by the National Payments Corporation of India, has drawn political opposition and a legal challenge. A plea was filed in the Supreme Court on Wednesday afternoon seeking to challenge the move.

What the new framework says

Under the revised structure, the 0.4 per cent MDR will apply to merchants receiving payments above Rs 2,000. The fee is to be borne entirely by the merchant and will be capped at Rs 300 for transactions of Rs 75,000 and above. Person-to-person UPI transfers will remain free, as will payments to small merchants, including street vendors, who receive up to Rs 1 lakh per month through UPI QR codes into their personal bank accounts. These small merchants are not required to replace or re-register their QR codes.

The government has advised banks to ensure that merchants do not pass on the additional cost to consumers.

Government defends decision

The Finance Ministry said external pressure played no role in the decision, rejecting suggestions that foreign influence was involved. Sources described the move as being in the broader interests of the UPI ecosystem, particularly to strengthen its safety and security and to make the system financially self-sustainable.

UPI has operated under a zero-MDR regime since January 2020. The government has said the cost of maintaining the digital payments infrastructure, which can reach Rs 20,000 crore annually, has been borne by banks and payment service providers for years. More than 55 crore people use UPI, with 703 entities involved in facilitating transactions.

Political backlash

Congress leader Rahul Gandhi criticised the decision in a video message, accusing the Narendra Modi government of having prostrated itself before United States President Donald Trump. His remarks came a day after the NPCI confirmed the revised framework.

Why the fee matters

The MDR is a fee merchants pay to banks and payment service providers for processing digital payments, covering costs such as cloud storage, the payment app and customer support. Credit cards typically carry an MDR of one to three per cent, while debit cards carry up to 0.9 per cent.

While transactions above Rs 2,000 accounted for only four per cent of person-to-merchant UPI payments by volume in 2025-26, they represented around two-thirds of UPI payments by value. In 2025-26, over 24,000 crore UPI transactions worth Rs 314 lakh crore were made.

The Parliamentary Standing Committee on Finance had earlier flagged concerns about the sustainability of the zero-MDR model, noting that it puts pressure on government finances and that a viable revenue mechanism is critical. The government currently spends roughly Rs 2,000 crore annually on an incentive scheme linked to the zero-MDR policy.

FM calls for broader tax vision

Separately, Union Finance Minister Nirmala Sitharaman said tax reforms must look beyond sectoral interests and focus on India's wider economic needs, including creating a fair and predictable system that promotes investment and innovation. Speaking at the Eighth International Tax Conference in Bengaluru, she urged tax professionals to put the nation first and highlighted efforts to rationalise TDS and TCS provisions, reduce unnecessary criminal consequences and renegotiate tax treaties with Mauritius, Singapore and Cyprus to restore India's right to tax capital gains at source.