India Imposes UPI Merchant Fees on High-Value Transactions

The Government of India will implement a new Merchant Discount Rate (MDR) framework for Unified Payments Interface (UPI) transactions effective October 15, 2026. Under the rules, person-to-merchant (P2M) transactions exceeding ₹2,000 will incur a 0.4% fee, capped at ₹300 for payments of ₹75,000 and above. Essential sectors, including fuel, telecom, and railways, will instead pay a flat ₹5 fee for transactions over ₹2,000, while capital market payments will attract a 0.02% rate. Person-to-person (P2P) transfers and P2M transactions under ₹2,000 remain free, as do payments for small merchants earning up to ₹1 lakh monthly.

Finance Minister Nirmala Sitharaman and the Ministry of Finance clarified that these charges are borne by merchants and are not a tax on consumers. The government stated the move is necessary to fund cybersecurity, infrastructure, and innovation for a system with an estimated ₹20,000 crore annual operational cost. To support digital inclusion, 5% of MDR collections will fund a program for small merchant adoption in rural areas.

Opposition leaders, including Rahul Gandhi and Mallikarjun Kharge, accused the government of surrendering to pressure from the United States and President Donald Trump to benefit American payment firms. The government dismissed these claims as false, asserting the policy protects India's electronic payment sovereignty by continuing to exclusively allow RuPay credit cards on UPI. Trade bodies, including the Retailers Association of India and petroleum dealers, warned the fees could squeeze profit margins and drive merchants back to cash, particularly during the festive season. An advocate has filed a public interest litigation in the Supreme Court challenging the framework's validity.