- Finance Minister Sitharaman clarified the 0.4% UPI merchant fee is a commercial arrangement.
- The fee applies to UPI transactions above Rs 2,000 and is paid by merchants, not consumers.
- Proceeds from the fee will be shared among NPCI, banks, POS providers, and merchant banks.
Finance Minister Nirmala Sitharaman on Thursday dismissed concerns that the proposed 0.4% merchant fee on UPI transactions above Rs 2,000 would be passed on to consumers. Clarifying the proposal, Sitharaman said the fee is a commercial arrangement agreed upon by stakeholders in the payments ecosystem, including banks, QR code service providers, point-of-sale (POS) machine providers and other entities involved in processing transactions.
She said the proceeds from the charge would be shared among the National Payments Corporation of India (NPCI), banks, POS providers and merchant-acquiring banks.
The Finance Minister said, "I wish to clarify, so that both traders and citizens are well-informed that this is neither a tax nor a cess. We are not imposing a surcharge, and the funds collected from this will not go into the government's coffers or treasury. This is a decision mutually agreed upon by the entities involved such as the banks providing POS machines, QR service providers, and collecting banks. Regarding the 0.4% charge applied to transactions exceeding Rs. 2,000, the proceeds will be shared among these four parties: the NPCI, the banks, the POS machine providers, and the merchant banks."
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The finance minister noted that merchants already absorb the Merchant Discount Rate (MDR) applicable on credit and debit card transactions without adding the cost to customers' bills. Drawing a parallel with the proposed UPI fee, she said merchants are unlikely to pass on the additional cost to consumers, as digital payments help support business growth. She stressed that the government has no role in the distribution of the fee among industry participants.
"I want to make this clear. Even now, traders accept various cards: Visa, debit, or credit cards, on which an MDR (Merchant Discount Rate) is applicable, yet this cost is not passed on to the customer. For instance, if you purchase an item worth Rs 5,000, the bill reflects that exact amount plus GST, of course, but the MDR is not added to it. Traders do not charge the consumer the MDR for other cards, similarly, the cost here will not be passed on to the consumer either. Since this system helps grow their business, the merchants and bankers handle these arrangements among themselves; the government plays no role in this process. If they do not pass the cost on to the consumer for other cards, why would they do so in this instance?," Sitharaman said.
VIDEO | PTI Exclusive: MDR on UPI payments above Rs 2,000 will not be passed on to customers, says Finance Minister Nirmala Sitharaman.
— Press Trust of India (@PTI_News) September 24, 2026
She says, "This is a complete misconception. Today, the opposition is levelling allegations against the government without fully understanding… pic.twitter.com/tNh5FzWAF0
What Are MDR Charges?
From October 15, a 0.4% MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free, government sources told PTI.
Essential services, such as railways, telecom, fuel and insurance, will attract a flat Rs 5 fee per transaction above Rs 2,000. Capital markets transactions (mutual funds, stockbroking) get a lower 0.02% rate, also capped at Rs 300.
Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge and shield about 96% of all merchant transactions.
The NPCI, which operates the UPI platform, on September 15, issued a circular providing for MDR on certain UPI transactions, with the move aimed at creating a sustainable revenue framework for the digital payments ecosystem.
A dedicated fund for promoting the use of UPI by small merchants will be set up, with a contribution of 5% of total MDR collections. This initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India's digital payments ecosystem.
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