Petrol dealers seek exemption from new charges on UPI transactions

Fuel retailers say thin, regulated margins leave little room to absorb the ₹5 charge on UPI transactions above ₹2,000.

Petrol pump dealers are pushing the government to exempt fuel stations from a new charge on Unified Payments Interface (UPI) payments set to take effect next month, warning that thin margins could make it uneconomical to absorb the fee and, in some cases, force them to stop accepting UPI payments above ₹2,000.

Petrol dealers’ associations from across the country have made representations to the ministries of finance and petroleum, seeking an exemption from the flat ₹5 merchant discount rate (MDR) that will apply to fuel transactions above ₹2,000 under the new UPI framework.

The finance ministry, which announced the new framework on Tuesday, said a 0.4% MDR will apply to person-to-merchant (P2M) UPI transactions above ₹2,000, while person-to-person transactions will remain free irrespective of value. For fuel and other specified essential sectors, the charge will be a flat ₹5 for transactions above ₹2,000. The MDR will be capped at ₹300 for transactions of ₹75,000 and above.

The All India Petroleum Dealers Association (AIPDA), in a letter to the finance minister, said petrol pumps provide an essential service and already operate on thin margins, with commission rates not having increased significantly over the years.

“We respectfully submit our strong request…to exempt petroleum retail outlets from any Merchant Discount Rate (MDR) or other transaction charges on UPI payments, particularly for transactions exceeding ₹2,000. Petrol and diesel are essential commodities, and fuel purchases are inherently high-value transactions. Consequently, payments exceeding 2,000 are routine at petrol pumps, making UPI one of the most widely used digital payment modes by customers,” AIPDA said in its letter.

It said a seemingly modest fixed charge of ₹5 per UPI transaction above ₹2,000 would have a “substantial cumulative” impact. Petrol pumps process a very large number of transactions every day, and multiplying even a small charge across thousands of transactions would create a significant recurring financial burden, it said. A percentage-based MDR of up to 0.4% would be even “more disproportionate” to the economics of petroleum retailing, it added.

Monty Sehgal, spokesperson of the Federation of All India Petroleum Traders, said, “We may have to stop accepting UPI Payments of ₹2,000 and above if exemption is not allowed to fuel retailers. With wafer-thin margins, not revised in line with Inflation since 2017, it is very difficult for petrol dealers to incur any such charges. A nominal hike in margins took place in 2024 but were inadequate to meet fixed establishment cost.”

Petrol dealers’ associations are also arguing that the economics of fuel retailing leave them with limited room to absorb additional transaction costs.

The United Petroleum Dealers Association said petroleum retail is fundamentally different from ordinary retail because fuel is an essential commodity and retail selling prices of petrol and diesel are determined and controlled under the framework of oil marketing companies and government policy.

In a letter marked to the Union petroleum minister, the governor of the Reserve Bank of India and the chairmen of the three state-run oil marketing companies, it demanded “complete exemption of all petroleum retail outlets from any MDR, flat per-transaction fee on UPI (and any other digital) payments, irrespective of transaction value and recognition of fuel stations as a special category of merchants in view of the regulated pricing of petroleum products and the fixed, non-negotiable nature of dealer margins”.

State-focused associations of petrol pump dealers, including the Akhila Karnataka Federation of Petroleum Traders and Federation of Gujarat Petroleum Dealers Association, have also written to the government with similar concerns and demanded an exemption.

Queries mailed to the ministries of finance, and petroleum and natural gas on Wednesday evening were not immediately answered.

The new framework will come into effect from 15 October, giving acquiring banks, payment aggregators, fintech applications and corporate accounting platforms time to update their software engines and billing systems, according to the finance ministry.

The decision has drawn criticism from several quarters. The government, however, has said the charges will not be levied on consumers but on merchants. The finance ministry said only 4% of merchant transactions would be affected by the introduction of MDR, as most transactions either fall below the ₹2,000 threshold or qualify for zero MDR under the P2PM framework for small merchants.

“P2P transactions constitute 37% of the total UPI transactions in volume terms and 70% in value terms," the finance ministry said in a release. It added that the decision followed deliberations by NPCI’s UPI steering committee on operational parameters, fee distribution models and category caps.

Petrol and diesel prices are politically sensitive and have significant inflationary implications. This year, prices of regular petrol and diesel were increased by around ₹7.50 per litre cumulatively due to a surge in global crude prices amid the war in West Asia. Prices have, however, remained unchanged after a series of rate hikes in May.

India has more than 100,000 petrol pumps, of which state-run Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. operate about 90,000. The rest are operated by private players, including Reliance Industries-backed Jio-bp, Rosneft-backed Nayara Energy, and Shell.