UPI MDR above Rs 2,000 won't reach consumers, says Sitharaman

Finance Minister Nirmala Sitharaman told PTI that the Merchant Discount Rate (MDR) on UPI payments above Rs 2,000 will not be passed on to customers. She said it is not a tax, cess or surcharge, the money does not go to the government, and the merchant pays it. NPCI has notified a 0.4% MDR on person-to-merchant transactions above Rs 2,000 from October 15, capped at Rs 300 for transactions of Rs 75,000 and above. The ministry will engage the IBA and traders' bodies.

Written by AI from Finance — Nirmala Sitharaman · not yet reviewed by an editor · Published 25 Sept 2026, 9:33 am IST

Source

Finance — Nirmala Sitharaman · read the original report ↗

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Desk check · compared with the source

What the desk checked (5)

MDR on UPI payments above Rs 2,000 will not be passed on to customers — Directly attributed to Finance Minister Nirmala Sitharaman in remarks to PTI.
NPCI notified a 0.4% MDR on P2M UPI transactions above Rs 2,000, effective October 15, capped at Rs 300 for transactions of Rs 75,000 and above — Figures appear in the source and are attributed to NPCI's notification.
Transactions up to Rs 2,000, all P2P transfers and merchants with monthly P2M collections below Rs 1 lakh are exempt — Stated in source as part of the MDR framework; no separate attribution given.
The GST Council could examine an 18% tax on MDR; no formal proposal is on the October 7 meeting agenda — Attributed to unnamed officials speaking to ET Bureau; presented as under discussion, not decided.
Finance ministry will engage the Indian Banks Association and traders' bodies; RuPay debit transactions remain exempt — Attributed to government officials cited by ET Bureau.

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Analysts’ view opinion

AI Economic Analyst

Sitharaman is technically right that MDR is not a tax and does not reach the exchequer — it is a service fee shared among NPCI, banks and POS/QR providers who run the UPI plumbing. But in economics what matters is not who is billed, it is who ultimately bears the cost: a 0.4% fee compresses merchant margins, and wherever competition is weak, part of it tends to leak into prices. The bigger shift is structural — with officials themselves saying government subsidy to payment providers has been inadequate, India is moving from "free" digital payments to a model where the merchant, not the taxpayer, funds the rails.

The gainers are the payments stack — NPCI, banks, POS and QR providers — which gets a more durable revenue base after years of thin subsidy support.
The immediate payer is the merchant, though the burden on small shops is limited by exemptions for sub-Rs 2,000 transactions, all P2P transfers, and merchants collecting under Rs 1 lakh a month.
The Rs 300 cap on transactions of Rs 75,000 and above lowers the effective rate on big-ticket payments, which cushions high-value categories like jewellery, vehicles or property-linked spends.
The card analogy — MDR exists on Visa, Mastercard and Amex without being billed to customers — is a strong argument, but UPI's reach is far wider than cards, so the same pass-through behaviour cannot be assumed across every sector.
The unresolved question of whether MDR itself attracts 18% GST is the real cost variable, since that would raise the underlying charge and sharpen any pass-through or cash-back-to-cash risk.

What to watch — Watch from October 15 whether merchants start adding surcharges on payments above Rs 2,000, whether any drift back to cash appears, and which way the GST Council leans on taxing MDR.

The story establishes a ministerial assurance and an outreach plan, not an enforceable ban — it does not spell out what rule prohibits merchants from levying the charge or what happens if they do.

Deep dive

Research brief · 8 facts · 5 dates · exam-ready

The brief

Context

UPI person-to-merchant payments in India have so far been free of a Merchant Discount Rate (MDR), the fee merchants pay to banks and payment service providers for processing digital transactions. The National Payments Corporation of India (NPCI) has now notified a 0.4% MDR on P2M UPI transactions above Rs 2,000 from October 15, triggering opposition criticism and fears that shops would pass the cost to customers. Finance Minister Nirmala Sitharaman told PTI that the charge is neither a tax, cess nor surcharge, that no money goes to the Consolidated Fund of India, and that it will not reach consumers. The finance ministry is separately reaching out to the Indian Banks Association (IBA) and traders' bodies to ensure compliance and allay concerns.

Key facts

NPCI has notified a 0.4% MDR on person-to-merchant (P2M) UPI transactions above Rs 2,000, effective October 15.
The charge is capped at Rs 300 for transactions of Rs 75,000 and above.
UPI transactions up to Rs 2,000 and all person-to-person (P2P) transfers remain exempt from MDR.
Merchants with monthly P2M UPI collections below Rs 1 lakh will not attract the charge.
Sitharaman said the collection is not going to the Consolidated Fund of India and that it is not a tax, cess or surcharge.
Proceeds will be shared among NPCI, banks, POS machine providers and merchant banks; the government receives nothing.
MDR is already levied on card transactions including Mastercard, Visa and American Express; RuPay debit transactions remain exempt.
Officials told ET Bureau the GST Council could examine whether 18% GST should apply on MDR on UPI transactions above Rs 2,000; no formal tax-rate proposal is on the October 7 GST Council agenda.

Timeline

Before the notificationA parliamentary panel that includes opposition members recommends bringing MDR onto UPI, an official told ET Bureau.
RecentNPCI notifies a 0.4% MDR on P2M UPI transactions above Rs 2,000, capped at Rs 300 for transactions of Rs 75,000 and above.
RecentSitharaman tells PTI the MDR will not be passed on to customers and calls opposition allegations a complete misconception.
October 7GST Council meeting scheduled, focused mainly on procedural relaxations; no formal proposal on tax rate change on the agenda.
October 15The 0.4% MDR on P2M UPI transactions above Rs 2,000 takes effect.

Who has a stake

Consumers using UPI — Government assurance that the 0.4% MDR will not be added to their bills, as with existing card MDR.
Merchants / traders' bodies — They bear the MDR on P2M transactions above Rs 2,000; ministry officials will meet them to address concerns over the levy.
NPCI — Notified the MDR framework and is among the entities sharing the proceeds.
Banks, POS machine providers, QR service providers and merchant banks — Share the MDR proceeds; the charge was mutually agreed upon by these players, per Sitharaman.
Indian Banks Association (IBA) — To be engaged by the ministry on execution and to run an awareness campaign; its members operate POS machines.
Finance Ministry / Finance Minister — Must defend the levy politically and ensure the cost does not filter down the chain to consumers.
GST Council — May have to decide whether 18% GST applies on MDR charged on UPI transactions above Rs 2,000.
Fintech ecosystem / payment service providers — Officials say government subsidy has been insufficient and these charges are needed for further development.

Why it matters

UPI is the backbone of everyday retail payments in India, so any fee on it raises immediate questions about who ultimately pays and whether small merchants revert to cash. The government's position is that the MDR is a commercial arrangement among NPCI, banks and payment providers, not a levy, with nothing accruing to the exchequer. The unresolved question of whether 18% GST will apply on the MDR itself could still change the cost calculus for merchants.

UPSC angle

Prelims pointers

NPCI notified a 0.4% MDR on P2M UPI transactions above Rs 2,000 from October 15, capped at Rs 300 for transactions of Rs 75,000 and above.
Exemptions: UPI transactions up to Rs 2,000, all P2P transfers, and merchants with monthly P2M collections below Rs 1 lakh.
MDR proceeds are shared among NPCI, banks, POS machine providers and merchant banks; nothing goes to the Consolidated Fund of India.
RuPay debit card transactions remain exempt from MDR, while Mastercard, Visa and American Express transactions attract it.
The GST Council meeting of October 7 was to focus mainly on procedural relaxations, with no formal tax-rate proposal on the agenda.
A parliamentary panel including opposition members had recommended bringing MDR onto UPI, per a government official.

Mains framing

The reintroduction of a Merchant Discount Rate on high-value UPI person-to-merchant transactions reflects the tension between keeping digital payments free at the point of use and making the payments ecosystem financially self-sustaining. Officials concede that the subsidy given to payment service providers has been inadequate, and argue that a 0.4% charge above Rs 2,000, capped at Rs 300 and exempting small merchants with monthly collections under Rs 1 lakh, is needed for the fintech ecosystem to develop; they also note a parliamentary panel with opposition members recommended it. The Finance Minister's defence rests on two claims: that the MDR is a commercially negotiated fee among NPCI, banks, POS and QR providers rather than a tax, cess or surcharge with no accrual to the Consolidated Fund of India, and that merchants already absorb card MDR without billing consumers. Critics fear pass-through to customers or a drift back to cash, apprehensions officials call misplaced. The way forward, as outlined in the source, is ministry engagement with the IBA on execution and an awareness campaign, dialogue with traders' bodies, and clarity from the GST Council on whether 18% GST will apply on the MDR itself — a decision officials hope will be "reasonable" since it concerns the common man.

Key terms

MDR (Merchant Discount Rate): A fee paid by the merchant to banks and payment service providers for processing a digital transaction; not a tax, cess or surcharge.
NPCI: National Payments Corporation of India, which operates UPI and has notified the 0.4% MDR on P2M transactions above Rs 2,000.
P2M vs P2P: Person-to-merchant transactions attract the new MDR above Rs 2,000; person-to-person UPI transfers remain fully exempt.
Consolidated Fund of India: The government's main account; Sitharaman stressed MDR collections do not flow into it, so it is not a government levy.
IBA (Indian Banks Association): Bankers' body the ministry will engage on MDR execution and which will run an awareness campaign; its members operate POS machines.
GST Council: Federal body that may examine whether 18% GST should apply on MDR charged on UPI transactions above Rs 2,000.

Practice questions

Critically examine the argument that the MDR on high-value UPI transactions is a commercial arrangement rather than a levy on consumers. What safeguards can ensure the cost is not passed on to customers?
Discuss the trade-off between zero-cost digital payments and a financially sustainable payments ecosystem in India, with reference to the new 0.4% MDR on P2M UPI transactions above Rs 2,000.
How would the application of 18% GST on MDR affect merchant adoption of UPI, and what role should the GST Council play in such decisions?

Grounded only in the source report — figures and dates are the source's, not inferred.

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