Overview
- The government finalised the 0.4% Merchant Discount Rate for person‑to‑merchant UPI payments above Rs 2,000 on September 14–15 and has said the rule will come into force on October 15, 2026.
- Under the new framework the merchant pays the fee, small merchants with up to Rs 1 lakh a month are exempt, the charge is capped at Rs 300 for very large transactions, selected sectors pay a flat Rs 5, and 5% of collections will fund wider merchant onboarding and acceptance.
- Merchant groups and surveys show strong resistance — a LocalCircles poll found only 17% of merchants would absorb a 0.4% MDR — and retailers warn some businesses may steer customers back to cash to avoid the cost.
- Opposition parties have attacked the move and a legal challenge has been filed, while the Finance Ministry and Department of Financial Services have rejected claims of foreign pressure and defended the decision as independent policy.
- Banks, payment firms and app providers see the fee as a new revenue stream that could finance security and upgrades and revive fintech plans, but officials and trade bodies warn the levy could reduce digital formalisation and weaken tax reporting if high‑value transactions move off UPI.