Finance Minister Nirmala Sitharaman has confirmed that the 0.4% Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000 will be paid by merchants, not customers. This policy aims to maintain free digital payments for individuals while ensuring the sustainability of the payment infrastructure. The government is working with the Indian Banks Association to ensure these service costs are not passed on to end-users.
Finance Minister Nirmala Sitharaman has provided clarity on the new 0.4% Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions, stating definitively that this cost will be borne by merchants and not by consumers. This clarification is a key development for the digital payment ecosystem, as it aims to prevent any additional charges for individuals making transactions above ₹2,000.
The regulatory framework establishes that this 0.4% fee applies only to person-to-merchant (P2M) transactions exceeding the ₹2,000 threshold. Small businesses are specifically protected, with the policy excluding merchants who process less than ₹1 lakh in monthly collections. For larger payments, the fee is capped at ₹300 for transactions of ₹75,000 or more, which provides predictability for high-value business transfers.
The government has emphasized that this fee is a service-related cost for maintaining the digital payments infrastructure, rather than a government tax or cess. By drawing a parallel to the traditional card payment system, where merchants have long absorbed transaction fees for platforms like Visa or Mastercard, the ministry is aligning UPI with standard industry practices. The Finance Ministry is working with the Indian Banks Association to ensure that merchants maintain their current pricing models, preventing them from offloading these transaction costs onto customers.
While the structure of the MDR is now clear, a significant cost factor remains the potential 18% Goods and Services Tax (GST) that could apply to these fees. The GST Council is expected to deliberate on this in upcoming sessions. Officials have indicated a lean toward leniency, given the potential impact on the total cost burden for merchants. Investors and stakeholders will follow the GST Council's final decision, as it will determine the ultimate operational expense for merchants using the UPI network.