Centre to monitor UPI MDR charges daily from 15 October

Banks and payment aggregators have been told not to pass the levy on to consumers as government seeks to prevent a shift to cash.

The Centre will begin daily monitoring of the new merchant discount rate (MDR) on UPI transactions from 15 October, seeking to ensure that banks and payment aggregators do not pass the charges on to consumers.

“The monitoring will focus on how banks, payment aggregators and other participants implement the new framework, particularly whether merchants bear the charges as envisaged or whether any part of the cost is transferred to consumers,” a senior government official told Mint.

RuPay debit-card transactions, meanwhile, will remain free regardless of the transaction amount, another official said separately.

Queries emailed to the finance ministry remained unanswered until press time.

Under the new framework, announced on Tuesday, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000 from 15 October, capped at ₹300 for transactions of ₹75,000 and above. Consumers will not be charged.

Person-to-person (P2P) transfers will remain free regardless of transaction value. P2M transactions up to ₹2,000—which account for more than 95% of P2M volume—will also continue to attract zero MDR. Small merchants in the P2PM category, receiving up to ₹1 lakh a month through UPI QR, will remain exempt.

Certain essential sectors, including railways, telecom, insurance, fuel, agricultural inputs and select utilities, will instead attract a flat ₹5 MDR on transactions above ₹2,000. A concessional MDR of 0.02% will apply to specified capital-market transactions, including those involving securities, mutual funds and stockbrokers, subject to the ₹300 cap.

India’s UPI platform processed 241.6 billion transactions worth ₹314.2 trillion in fiscal year 2026 (FY26), up 30% in volume and 21% in value from a year earlier. UPI had more than 55 crore users as of August 2026, according to data from National Payments Corporation of India (NPCI).

In August, UPI processed 24.5 billion transactions worth ₹29.8 trillion, up 22% in volume and 20% in value from a year earlier. P2M transactions accounted for 63% of UPI transactions by volume, with 86% below ₹500 and another 10% between ₹501 and ₹2,000, according to the latest NPCI data. By value, P2M transactions accounted for 30% of UPI transactions, with transactions up to ₹500 making up 16% and those between ₹501 and ₹2,000 another 17%.

The senior government official also clarified that there is no separate goods and services tax (GST) on the underlying UPI transaction. The existing GST framework will apply, with 18% GST levied on the MDR or fee charged on eligible transactions, rather than on the underlying transaction value.

Eligible GST-registered businesses can claim input tax credit on the GST paid, subject to applicable conditions, and set it off against their output tax liability.

Officials said the government does not expect significant net revenue from this component because eligible businesses can claim input tax credit. The GST implications could also come up before the GST Council as the impact of the new framework is assessed.

For example, on an eligible ₹10,000 transaction, the 0.4% MDR would amount to ₹40, with 18% GST of ₹7.20 applying to the MDR. The GST component could be claimed as input tax credit by eligible merchants, subject to applicable rules.

The capital-market concession followed consultations with the Securities and Exchange Board of India (Sebi), stock exchanges and other stakeholders, the officials said.

Separately, the Department of Financial Services (DFS) has rejected allegations that the MDR was introduced under external pressure, following references to the 2026 report of the US Trade Representative (USTR).

In a clarification posted on X, DFS said the USTR report had raised two issues: the inability of US electronic payment services suppliers to participate in the UPI ecosystem, including credit transactions, on a level playing field with RuPay; and NPCI’s 30% market-share limit for third-party application providers (TPAPs), announced in November 2020 with enforcement scheduled for December 2026.

On the first issue, DFS said an NPCI circular dated 15 September specifies that credit transactions on UPI can be made only through RuPay credit cards. The department said this reflected an existing policy aimed at making RuPay the preferred credit-card network among users in India.

On the 30% market-share limit, DFS said the mandate could not earlier be implemented because smaller companies lacked a self-sustaining revenue model to compete with market leaders. The department said MDR on select high-value transactions would provide such a revenue model and allow more domestic companies to expand their presence in the UPI ecosystem.

“Contrary to misleading claims that MDR has been introduced under external pressure, introduction of MDR on select high-value transactions will enable more domestic companies to operate under UPI. Thus, the action is a step in protecting India’s sovereignty in the electronic payment ecosystem,” the DFS said in its post on X.

It added that the government had promoted RuPay credit and debit cards as a domestic alternative and that debit cards had been kept free of MDR to support RuPay’s growth. DFS termed the allegation that MDR had been introduced under external influence “patently false and misleading.”