New Delhi: Finance Minister Nirmala Sitharaman has clarified that the new Merchant Discount Rate on specified UPI transactions above ₹2,000 is not a tax, cess or surcharge, and that customers will not be charged separately for making such payments.
The new framework, which is scheduled to take effect from October 15, 2026, introduces an MDR of 0.4% on specified person to merchant UPI transactions above ₹2,000. The charge will be capped at ₹300 for transactions of ₹75,000 or more. Person to person UPI payments will continue to remain free.
Sitharaman said the money collected through MDR will not go into the government treasury. Instead, it will be distributed among participants in the digital payments ecosystem, including banks and payment service providers involved in processing transactions.
The Finance Minister stressed that customers will continue to pay the amount displayed by merchants without a separate MDR being added to their bills. She compared the arrangement with card payments, where merchants generally bear the applicable processing charges rather than collecting them separately from customers.
The government has also clarified that payments to merchants up to ₹2,000 will remain free. Small merchants covered under the zero MDR framework will also continue without the charge. According to the government, around 96% of person to merchant UPI transactions will remain unaffected.
The new system marks a change after years of zero MDR for UPI merchant payments. The stated framework is intended to support the financial sustainability of the digital payments ecosystem while keeping routine and person to person transactions free.
The clarification comes amid concerns over whether merchants could eventually pass the cost of MDR to customers. The government has maintained that the charge is part of the merchant payment ecosystem and is not a direct fee imposed on UPI users.
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