Finance Minister Nirmala Sitharaman says Merchant Discount Rate is an ecosystem charge, not a tax or fee to be paid by UPI users.
New Delhi, September 22, 2026: Union Finance Minister Nirmala Sitharaman has clarified that Merchant Discount Rate (MDR) charges applicable to certain UPI merchant transactions will not be passed on to consumers.
Sitharaman said MDR is a charge within the digital payments ecosystem and is neither a tax nor a cess collected by the government. She said the burden of the charge will not fall on customers using UPI for payments.
What Is the New UPI MDR Framework?
The National Payments Corporation of India (NPCI) introduced a revised MDR framework on September 15. Under the framework, a 0.4 per cent MDR applies to specified Person-to-Merchant (P2M) UPI transactions above ₹2,000.
The MDR is capped at ₹300 per transaction for transactions of ₹75,000 and above, according to the Finance Ministry’s clarification.
However, the charge is not imposed directly on consumers. Banks have been advised to ensure that merchants do not pass MDR charges on to customers, while UPI application providers cannot impose platform fees or hidden charges on users.
UPI Payments Below ₹2,000 Remain Free
Payments made to merchants up to ₹2,000 will continue to remain free under the framework. Person-to-person (P2P) UPI transactions will also remain completely free, irrespective of the amount transferred.
The government has said that approximately 96 per cent of P2M UPI transactions will remain unaffected because they either fall below the ₹2,000 threshold or are covered by the zero-MDR framework for small merchants.
MDR Not a Government Tax
Sitharaman stressed that MDR is neither a tax nor a cess and the money will not go into the Consolidated Fund of India.
Instead, the charge is distributed among participants in the payments ecosystem, including banks, payment service providers and UPI application providers. The stated objective is to support the operation and expansion of India’s digital payments infrastructure.
The Finance Ministry has also said that a portion of MDR collections will support a dedicated fund aimed at expanding UPI adoption among small merchants.
Consumers to Continue Using UPI Free of Cost
The government maintains that individual users will continue to use UPI without transaction charges. There will also be no monthly quotas or volume-based fees for free UPI usage.
The revised framework is intended to create a revenue mechanism for the payment ecosystem while keeping person-to-person payments and most merchant transactions free.
Sitharaman also addressed criticism surrounding the MDR framework, saying that misconceptions about the charges should not lead consumers to believe that they will have to pay additional fees while making eligible UPI payments.
