Finance Minister Nirmala Sitharaman clarified that the proposed Merchant Discount Rate on certain high-value UPI transactions would function neither as a tax nor as a cess or surcharge, and that any revenue generated would not flow to the government, pushing back against objections raised by Opposition parties. Sitharaman clarified that the MDR represents a fee within the digital payments ecosystem, collected from merchants by entities that facilitate UPI transactions — such as payment service providers, merchant banks, and other participants — and further noted that it does not constitute a tax, a cess, or even a surcharge. Sitharaman clarified to a television channel that the funds would not be directed to the Consolidated Fund of India. From the total MDR collected, customers' banks would receive 40 per cent, the payment gateway 30 per cent, the UPI app 20 per cent, and the UPI app's sponsoring bank the remaining 10 per cent. The MDR would be absorbed within the merchant payment ecosystem and not transferred to consumers, according to the statement. A 0.4 per cent merchant discount rate will apply to eligible person-to-merchant UPI payments exceeding Rs 2,000 under a framework set by the National Payments Corporation of India, effective 15 October. Payments below Rs 2,000 and peer-to-peer transfers are set to remain exempt from charges. Sitharaman clarified that the fee would be distributed across various stakeholders within the payment ecosystem to sustain technological infrastructure and drive advancements in digital transactions, emphasising that the arrangement had no government involvement and that the MDR framework encompassed NPCI, merchants, banks, aggregators, and other service providers. The Finance Minister further noted that retailers are already subject to MDR on credit and debit card transactions, adding that the revised framework ought not to be interpreted as an additional burden on consumers. The official added that RuPay transactions would carry no charges, with UPI payments under Rs 2,000 also exempt from merchant discount rate fees. Around 96 per cent of consumer-to-retailer UPI payments are projected to fall outside the scope of the revised guidelines. Starting from 15 October, retailers will bear a merchant discount rate of 0.4 per cent, with the charge capped at Rs 300 for any transaction valued at Rs 75,000 or above, leaving consumers unaffected. Person-to-person transfers and the overwhelming bulk of routine retail transactions are expected to carry no charge. A flat charge of Rs 5 per transaction will apply to payments exceeding Rs 2,000 across sectors including railways, telecommunications, fuel, and insurance. Transactions in equity markets — encompassing mutual funds and brokerage activity — will be subject to a reduced levy of 0.02 per cent, with a ceiling of Rs 300. Traders processing monthly UPI QR code payments of up to Rs 1 lakh will continue to face no charges, keeping roughly 96 per cent of all merchant transactions outside the scope of the new levy. On 15 September, the National Payments Corporation of India released a directive introducing merchant discount rates on select UPI transactions, a measure intended to establish a financially viable model for the country's digital payments industry. A ring-fenced pool of money to boost UPI adoption among small traders will be established, drawing on five per cent of aggregate MDR revenue collected. The programme seeks to broaden acceptance of UPI, foster ongoing adoption, and draw small enterprises further into the country's digital payments network.
