Sitharaman Rejects US Pressure Claim as 0.4% UPI MDR for Merchants Starts Oct 15

Finance Minister Nirmala Sitharaman has rejected Opposition allegations that the decision to introduce a 0.4 per cent Merchant Discount Rate (MDR) on select high-value UPI transactions was taken under external pressure, saying the move was a professional decision by the digital payments ecosystem.

Sitharaman termed the allegations of foreign, particularly US, pressure “absolutely baseless” and said the government had not imposed the MDR. The decision, she said, was taken jointly by the National Payments Corporation of India (NPCI), payment banks and merchant banks.

“This is not a tax, this is not a cess, this is not even a surcharge. And the collection is not coming to the Consolidated Fund of India,” Sitharaman said, stressing that the MDR is a charge within the digital payments ecosystem.

Under the new framework, a 0.4 per cent MDR will apply from October 15 to specified person-to-merchant UPI transactions above Rs 2,000. The charge will be borne by merchants and not consumers, while transactions between individuals and UPI payments up to Rs 2,000 will remain free.

The MDR collected will be distributed among ecosystem participants, with 40 per cent going to customers’ banks, 30 per cent to payment gateways, 20 per cent to the UPI app and 10 per cent to the sponsoring bank.

The charge will be capped at Rs 300 for transactions of Rs 75,000 or more. Essential services such as railways, telecom, fuel and insurance will attract a flat Rs 5 fee for transactions above Rs 2,000, while capital-market transactions will carry a 0.02 per cent MDR, also capped at Rs 300.

Small merchants collecting up to Rs 1 lakh a month through UPI QR codes will remain exempt, with about 96 per cent of merchant transactions expected to remain unaffected.

NPCI issued the MDR circular on September 15, describing the move as part of efforts to create a sustainable revenue framework for digital payments. Five per cent of MDR collections will also be contributed to a dedicated fund to promote UPI adoption among small merchants.