New Delhi: The introduction of a new Merchant Discount Rate (MDR) on certain UPI payments above ₹2,000 has triggered concern among retailers, with industry representatives warning that additional costs could encourage some small businesses to favour cash transactions.
Under the revised framework, coming into effect from October 15, 2026, a 0.4% MDR will apply to specified person to merchant UPI transactions above ₹2,000, subject to a maximum charge of ₹300. Certain sectors, including railways, telecom, insurance and fuel, will have a flat ₹5 MDR. Consumers will continue to make UPI payments without a transaction fee.
The Retailers Association of India has raised concerns about the potential impact on merchants operating with narrow profit margins. Its chief executive said even a relatively small payment processing cost could influence decisions over whether to accept digital payments or cash.
The association plans to raise the issue with the National Payments Corporation of India and the Finance Ministry, including a proposal for a differentiated structure between debit and credit linked UPI transactions.
The Clothing Manufacturers Association of India has also questioned the timing, as the new framework will begin shortly before the Diwali shopping season. Retailers traditionally experience a major increase in sales during the festive period, making transaction costs a significant consideration for businesses.
However, the government has maintained that the change will have a limited impact on overall UPI usage. Person to person transfers will remain free, while payments to merchants up to ₹2,000 and qualifying small merchants will continue without MDR. The government has stated that around 96% of person to merchant transactions will remain unaffected.
The MDR is a payment ecosystem fee rather than a government tax. It is distributed among participating banks and payment service providers to support the operation and expansion of the UPI network.
UPI has continued to record massive growth, with NPCI data showing more than 24.5 billion transactions in August 2026.
