UPI MDR from October 15: Govt plans daily monitoring to stop merchants passing 0.4% fee to customers

The government is in discussions with payment aggregators and merchant-facing platforms to ensure that the new Merchant Discount Rate (MDR) on larger UPI transactions is not passed on to consumers, The Times of India reported, citing finance ministry officials.

The consultations come ahead of the introduction of a 0.4% MDR on UPI merchant transactions above Rs 2,000 from October 15. The government has maintained that merchants, rather than consumers, should bear the charge and does not expect the move to slow UPI usage or trigger a shift towards cash payments, according to the TOI report.

Also Read: UPI MDR kicks in October 15: RBI DG says merchant fee on payments above Rs 2,000 won’t trigger cash surge


The finance ministry had earlier advised banks to ensure that merchants do not transfer the cost of MDR to customers. Officials said the government now plans to closely track compliance once the new regime takes effect.

"From Oct 15, we will monitor on a daily basis whether merchants are passing the MDR to consumers," the officials said, according to TOI.

The report did not specify what enforcement measures could be taken against merchants found passing the charge on to customers.

Will GST add another cost for merchants?

Government officials also sought to address concerns over the tax implications of MDR, arguing that merchants would not face an additional GST burden because the tax paid would be available as an input tax credit.

The issue could also come up for discussion at the GST Council meeting next month, officials told TOI.

The government's move to introduce MDR has drawn criticism from the Congress, which has alleged that the charge was introduced under pressure from the United States and could benefit large foreign payment platforms.

The Department of Financial Services has rejected that argument, maintaining that the MDR framework is intended to create room for more domestic participants and allow smaller payment companies to compete.

Officials pointed to the government's policy of permitting only RuPay credit cards to be linked with UPI as evidence of its focus on strengthening domestic payment infrastructure.

Also Read: Retailers push back against proposed 0.4% MDR on UPI transactions above Rs 2,000, warn of hit to thin margins

“Any foreign company operating in India would like their product to be as competitive as local ones. But if govt has kept RuPay debit cards free of MDR, how can anyone think we are acting under foreign pressure? Introducing MDR enables new players to enter and lets existing small players compete,” an official said, according to TOI.

Why the government says UPI can't remain fully subsidised

Officials also argued that indefinitely subsidising the entire fast-payment ecosystem could limit innovation and competition in the payments industry.

“As a sovereign nation, if we want to have our own institutions, some transactions have to bear the cost,” the official said.

The government's position is that allowing some transactions to carry a cost could provide payment companies with the economic incentive needed to invest in infrastructure and innovation while preserving free UPI payments for a large share of users and transactions.

New fund planned for small merchants

A portion of the money generated through MDR will also be channelled back into expanding UPI adoption among smaller businesses, according to the report.

Officials said a dedicated fund would be created using 5% of MDR collections. The money would be used to promote and accelerate UPI adoption among small merchants and encourage them to continue accepting digital payments.

The planned mechanism effectively seeks to balance the introduction of charges on larger merchant transactions with incentives aimed at keeping UPI attractive for smaller businesses.

The government, meanwhile, has maintained that the new MDR framework will neither significantly dent UPI transaction volumes nor lead consumers and merchants to return to cash once it takes effect on October 15.