Finance minister Nirmala Sitharaman has clarified that the Merchant Discount Rate (MDR) on UPI transactions above Rs 2,000 will not be a government charge and will not be passed on to consumers. The cost, she said, will be borne within the payment ecosystem by traders, merchants, banks and other service providers.
Sitharaman said MDR is a service charge collected by entities involved in processing payments, including the National Payments Corporation of India (NPCI), payment aggregators, service providers, point-of-sale machine providers and merchant banks. It is not a tax, cess or surcharge, and the proceeds will not go to the Consolidated Fund of India.
“They are not right. They are not correct. Because this is not a tax, this is not a cess, this is not even a surcharge,” Sitharaman said while rejecting claims that the framework would directly burden customers. She added that the charge would not appear as an additional cost on consumer bills.
Under the arrangement explained by the finance minister, transactions below Rs 2,000 will not attract MDR for merchants. For transactions above that threshold, the merchant, banks and other participants will bear the charge. Sitharaman said the charge cannot be passed on to the customer.
The clarification comes amid uncertainty over the impact of the newly announced framework on India’s rapidly expanding digital payments network. NPCI managing director and chief executive officer Dilip Asbe has said that most UPI activity falls outside the MDR framework, limiting the portion of transactions potentially affected.
According to figures cited by Asbe at the 13th SBI Banking & Economics Conclave 2026, UPI handles transaction value of around Rs 30 lakh crore, while merchant payments account for approximately Rs 6-7 lakh crore. About 75% of the overall UPI transaction value is outside the charging framework, he said, while the framework is primarily applicable to transactions above Rs 2,000.
Asbe also said that MDR collections are concentrated among larger businesses. Around 80% of MDR collected comes from businesses with annual gross merchandise value and digital payment collections above Rs 1,000 crore. These businesses already accept credit cards and pay higher charges, according to his assessment. Businesses with annual turnover of Rs 1 crore and above could account for another 10% of MDR collections.
This leaves around 10% of MDR collections where there could be a possibility of consumers being charged, Asbe said. He added that banks, NPCI, acquiring banks and payment aggregators would need to ensure that charges were not passed back to customers.
Asbe expects UPI transaction value to increase by around 10% this year, with transaction volumes growing by 15-17%. He attributed the slower growth partly to reduced investment by ecosystem participants after the first five to six years of heavy spending on UPI infrastructure. The longer-term objective, he said, is to take UPI usage to one billion users and build infrastructure that can expand access to credit, investments and insurance.
