India introduces 0.4% MDR on UPI merchant payments above Rs 2,000 from Oct 15

The Union Finance Ministry notified a 0.4 per cent merchant discount rate (MDR) on person-to-merchant UPI transactions above Rs 2,000, effective October 15. Person-to-person transfers and payments up to Rs 2,000 remain free. Small merchants earning up to Rs 1 lakh monthly through UPI QR codes are exempt, and the charge is capped at Rs 300 per transaction. Essential sectors such as railways, telecom, fuel, insurance and agricultural inputs will attract a flat Rs 5 fee, while capital-market transactions face 0.02 per cent MDR capped at Rs 300.

The government says only about 4 per cent of total UPI transaction volume will be affected. A monitoring mechanism is being prepared to ensure merchants and payment service providers do not pass the cost to consumers. The ministry argues a sustainable revenue model is needed because the Rs 2,000 crore budget allocation falls far short of the industry's estimated Rs 20,700 crore operational cost.

“Modi ji has decided to lie down straight and prostrate himself in front of Donald Trump.”

A Parliamentary Standing Committee on Finance, chaired by BJP MP Bhartruhari Mahtab, had recommended a tiered MDR framework in a report adopted on August 12. Five Congress MPs — including former finance minister P Chidambaram and Manish Tewari — were present and recorded no dissent. The government has cited this to counter Congress leader Rahul Gandhi's criticism.

Gandhi alleged Prime Minister Narendra Modi has decided to "prostrate" before US President Donald Trump and demanded an immediate rollback, calling the levy a "UPI tax" on every Indian. Congress general secretary Jairam Ramesh questioned whether the move aims to help US card companies compete with UPI, noting a June 2025 finance ministry post had denied any MDR plan.

Jammu and Kashmir Chief Minister Omar Abdullah, a Congress ally, broke ranks to support the fee, stating "we don't appreciate what we get for free" and that running the UPI system is expensive. Meanwhile, advocate Anjan Datta filed a public interest litigation in the Supreme Court challenging the constitutional validity of the amended Payment and Settlement Systems Act provision and the rate-setting via press release without gazette notification.

Payment stocks reacted positively: Paytm shares surged over 7 per cent to a 52-week high, while One MobiKwik and Pine Labs also gained. The Finance Ministry expects minimal inflationary impact, noting GST on MDR would largely be offset through input tax credit.