The government has clarified that the new Merchant Discount Rate (MDR) framework for certain Unified Payments Interface (UPI) transactions will not impose additional costs on consumers or place a financial burden on small merchants. The clarification comes after reports raised concerns that the revised framework could make digital payments more expensive.
According to the government and the National Payments Corporation of India (NPCI), person-to-person UPI transactions will continue to remain completely free, irrespective of the amount transferred. Payments made to merchants up to ₹2,000 will also continue to attract zero MDR. The government has stated that around 96 per cent of UPI person-to-merchant transactions will therefore remain unaffected.
The zero-MDR protection also applies to eligible small merchants. Merchants receiving up to ₹1 lakh per month through UPI QR codes under the specified small-merchant framework will continue to enjoy zero MDR on their transactions. This provision is intended to protect street vendors, neighbourhood shops and other small businesses from additional payment costs.
Under the framework, MDR applies only to specified merchant transactions above ₹2,000. The government has clarified that MDR is not a tax collected by the government or NPCI. Instead, it is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers, to support the operation and expansion of digital payment infrastructure.
The government has also said that customers will not be required to pay MDR. Banks have been advised to ensure that merchants do not pass the MDR cost on to customers, while UPI application providers are prohibited from imposing platform fees or hidden charges on users.
The new framework is intended to support the long-term sustainability of the UPI ecosystem while keeping person-to-person payments free and protecting individuals and small businesses from additional charges. A dedicated fund is also proposed to support wider UPI adoption among small merchants, with an amount equivalent to 5 per cent of total MDR collections earmarked for the initiative.
The clarification is aimed at addressing concerns surrounding the impact of MDR on India’s rapidly expanding digital payments ecosystem and reaffirming that the majority of everyday UPI transactions will continue without additional charges.
