India's Chamber of Trade and Industry (CTI) has formally appealed to Finance Minister Nirmala Sitharaman, urging a rollback of the Merchant Discount Rate (MDR) set to be imposed on Unified Payments Interface (UPI) transactions exceeding ₹2,000. The new charge, which comes into effect on October 15, has sparked significant concern among the nation's estimated 6 crore shopkeepers, traders, and entrepreneurs.
Traders Fear Financial Burden and Shift to Cash
CTI Chairman Brijesh Goyal articulated the trade body's deep disappointment, emphasizing that the MDR will place an additional financial burden on businesses. The organization fears that merchants may reconsider using UPI for larger transactions once the 0.4 percent charge, capped at ₹300 per transaction, is implemented. This could potentially lead to a decline of up to 50 percent in UPI payments above ₹2,000, pushing both merchants and customers back towards cash for substantial purchases.
While the new MDR applies to eligible person-to-merchant payments, the government has clarified that person-to-person UPI payments will remain free regardless of the amount. Additionally, small merchants receiving up to ₹1 lakh per month through UPI QR codes will continue to be exempt from the charge.
Government Clarifies MDR is Not a Tax on Consumers
Finance Minister Nirmala Sitharaman has strongly refuted claims that the MDR constitutes a tax on consumers, stating it will not be passed on to customers. She clarified that the MDR is a service charge collected by the National Payments Corporation of India (NPCI) and other service providers—including payment gateways, UPI apps, and merchant banks—to ensure a sustainable revenue framework for the digital payments ecosystem.
Government sources indicate that the collected MDR will be distributed among various stakeholders: 40 percent to customers’ banks, 30 percent to the payment gateway, 20 percent to the UPI app, and 10 percent to the sponsoring bank of the UPI app. An awareness campaign led by the Indian Banks’ Association is reportedly planned to address misconceptions surrounding the levy.
Understanding the MDR Structure
The 0.4 percent MDR means a ₹3,000 payment would incur a ₹12 charge, a ₹10,000 payment ₹40, and a ₹50,000 payment ₹200. The charge is capped at ₹300 for transactions of ₹75,000 and above. Certain essential services, such as railways, telecom, fuel, and insurance, will attract a flat ₹5 fee per transaction above ₹2,000. Capital market transactions, including mutual funds and stockbroking, will see a lower 0.02 percent rate, also capped at ₹300.
Upcoming GST Council Review and Promotional Fund
Government sources have also confirmed that the Goods and Services Tax (GST) Council, scheduled to meet on October 7, will review the 18 percent GST applicable on merchant fees for UPI transactions over ₹2,000. Furthermore, a dedicated fund, comprising 5 percent of total MDR collections, is slated for creation to promote UPI usage among small merchants. As the October 15 deadline approaches, the debate between trader concerns and the government's stance on digital payment sustainability continues.