Finance Minister Nirmala Sitharaman clarified that the proposed Merchant Discount Rate on certain high-value UPI transactions would function neither as a tax, cess, nor surcharge, and that any revenue generated would not flow to the government, pushing back against objections raised by Opposition parties. The Finance Minister clarified that the MDR functions as a fee within the digital payments framework, collected by entities that facilitate UPI transactions — among them payment service providers, merchants' banks, and other participants in the ecosystem — and further stated that it does not constitute a tax, a cess, or a surcharge of any kind. Sitharaman clarified to a television channel that the revenue would not be directed to the Consolidated Fund of India. Under the proposed framework, customers' banks would receive 40 per cent of the MDR collected, with the payment gateway allocated 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 passed on to consumers, she stated. Starting October 15, NPCI will levy a 0.4 per cent merchant discount rate on qualifying person-to-merchant UPI payments exceeding ₹2,000. Payments below ₹2,000 and peer-to-peer transfers are set to remain exempt from charges. Sitharaman clarified that the fee would be distributed across various participants in the payment ecosystem to sustain technological infrastructure and drive advancement in digital transactions, adding that the MDR framework had no government involvement and instead brought together NPCI, merchants, banks, aggregators, and other service providers. The Finance Minister further noted that retailers are already subject to MDR fees 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 ₹2,000 also exempt from merchant discount rates. Around 96 per cent of consumer-to-retailer UPI payments are projected to fall outside the scope of the updated regulatory guidelines. The Finance Minister's comments follow objections to the proposed MDR, with questions raised about its potential effects on traders and whether any resulting costs would be transferred to buyers. Starting from 15 October, retailers will bear a Merchant Discount Rate of 0.4 per cent, with the charge capped at ₹300 for any transaction valued at ₹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 ₹5 per transaction exceeding ₹2,000 will apply to sectors including railways, telecommunications, fuel, and insurance. Transactions in capital markets — covering mutual funds and stockbroking — attract a reduced levy of 0.02 per cent, subject to a ceiling of ₹300. Traders processing monthly UPI QR code payments of up to ₹1 lakh face no additional fees under the revised structure, a threshold that covers roughly 96 per cent of all merchant transactions. 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 structure for the country's digital payments industry. A ring-fenced pool of money aimed at encouraging UPI adoption among small traders will be established, drawing on five per cent of aggregate MDR revenue collected.
