UPI fee rollback ruled out: 0.4% MDR stays on big payments

Amid Opposition attacks on the government’s decision to levy a fee on UPI payments above Rs 2,000 made to merchants, government sources said there is no plan to reconsider the 0.4% Merchant Discount Rate (MDR) on such transactions, PTI reported on Wednesday.

The decision has drawn strong opposition from several quarters, including traders, shopkeepers and political parties, which have dubbed the move the 'Modi Tax'.

A top official, when asked whether the government was considering rolling back the proposed MDR on UPI transactions above Rs 2,000 from October 15, said a decision had already been taken and there was no question of reversing it.


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Sources said the decision to impose MDR charges was taken in the larger interest of the UPI ecosystem and to strengthen its safety and security.

The decision to levy charges, as is prevalent in other countries, was taken when the UPI system was introduced in 2020, sources said. The new MDR framework, they added, will make UPI self-sustainable.

Some Opposition parties, including the Congress, have accused Prime Minister Narendra Modi of succumbing to US pressure.

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Defending the decision, the government said on Tuesday that it would also provide incentives for further expansion of UPI in rural and semi-urban areas and help maintain its competitiveness, while ensuring that the vast majority of payments remain free of charge.

Parliament’s Standing Committee on Finance, in its 32nd report, had warned that the zero-MDR regime "puts pressure on government finances" and limits the ecosystem’s ability to invest in long-term infrastructure. The panel said "establishing a viable revenue mechanism is critical to ensuring the UPI ecosystem achieves financial sustainability without perpetually straining the government exchequer".

The panel had also flagged that the government was providing roughly Rs 2,000 crore a year to support the incentive scheme built around the zero-MDR policy.

Ending nearly six years of fully free UPI payments, the government on Tuesday introduced a 0.4% fee on merchant transfers worth more than Rs 2,000 through the platform from October 15. At the same time, everyday person-to-person transactions and small-value payments will remain exempt from the charge.

"Customers will not be required to pay any charge when making such payments through UPI," the finance ministry said in a statement, adding, "MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments."

Individuals will also continue to have "unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions", it said.

The move marks a significant shift for the world’s largest real-time payments system, even as the government has sought to reassure the hundreds of millions of daily users that routine UPI payments will remain free.

(With inputs from PTI)