The debate over Merchant Discount Rate (MDR) on selected UPI transactions has intensified, with the Centre responding to allegations of foreign influence behind the new framework
. The Finance Ministry has clarified that India’s decisions regarding UPI and digital payments are taken independently and are not the result of pressure from any foreign country or external authority.
The government has also clarified that the new framework does not mean that ordinary UPI users will have to pay transaction charges. Person-to-person, or P2P, UPI transactions will continue to remain completely free, irrespective of the amount transferred. Merchant payments up to ₹2,000 will also remain free of MDR. Small merchants covered under the zero-MDR framework will continue to receive protection from additional payment costs.
Under the new framework, a nominal MDR of 0.4% will apply to specified person-to-merchant transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction. Separate provisions have also been made for certain essential sectors and capital-market-related transactions.
The Finance Ministry has further clarified that MDR is not a direct charge imposed on customers
. It is a charge within the merchant payment ecosystem and is distributed among participating entities such as banks and payment service providers.
The government has stated that banks should ensure that merchants do not pass the MDR cost directly on to customers.
According to the government, around 96% of merchant transactions will remain unaffected by the new MDR framework. The charge will apply only to specified merchant transactions above the prescribed threshold.
The government has described the framework as a measure aimed at supporting the long-term sustainability, technological development, security and resilience of the UPI ecosystem.
UPI has become a major part of India’s digital payment infrastructure, with millions of individuals and businesses using it every day
. The government has previously maintained that the system should remain affordable and accessible while also ensuring that
the infrastructure supporting digital payments remains financially and technologically sustainable.
The latest controversy therefore centres on two different positions. Opposition criticism has focused on the reasons behind the introduction of MDR and allegations of external influence, while
the Centre has rejected those allegations and maintained that the framework is based on India’s own policy decisions and the requirements of the domestic digital payment ecosystem.
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