The Union government is holding discussions with payment aggregators and merchant-onboarding platforms to ensure that the merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions is not passed on to customers, according to Finance Ministry officials.
The Centre has also sought to allay concerns over the proposed 0.4% merchant fee on UPI transactions above Rs 2,000, saying it does not expect the move to reduce digital-payment volumes or push consumers back towards cash transactions.
Officials said banks have already been advised to make sure merchants do not levy the MDR charge separately on buyers. The government is expected to begin daily monitoring from October 15 to track whether consumers are being asked to bear the fee at shops, online platforms or other merchant outlets.
Daily monitoring from October 15
“We will monitor on a daily basis whether merchants are passing the MDR to consumers,” officials said, without detailing the exact enforcement mechanism or penalties that could be considered if violations are identified.
The government is engaging payment aggregators, fintech platforms and businesses that enable merchant onboarding as part of its effort to keep the cost limited to merchants rather than customers. The move comes amid concerns that retailers could add a separate UPI charge to bills, particularly for transactions above the Rs 2,000 threshold.
The proposed MDR is aimed at creating a more sustainable payments ecosystem, officials said. The Centre’s position is that a modest charge on higher-value transactions would help support infrastructure, innovation and competition without weakening the wider adoption of UPI.
Officials also clarified that merchants would not face an additional Goods and Services Tax burden when the MDR framework takes effect. They said the applicable tax impact would be offset through input tax credit. The matter may also be discussed at the next GST Council meeting.
Govt rejects criticism over fee
The MDR proposal has triggered political criticism, with the Congress alleging that the fee was introduced under pressure from the United States to benefit large foreign payment platforms.
The Department of Financial Services rejected the allegation through a social-media post, saying the policy was designed to encourage a wider range of players in India’s digital-payments sector, including domestic firms.
Finance Ministry officials said the government’s policy on card-linked UPI transactions demonstrates its preference for India’s indigenous RuPay network. At present, only RuPay credit cards are permitted to be linked to UPI, a measure intended to make the domestic card-payment network more competitive.
“Any foreign company operating in India would like their product to be as competitive as local ones. But if the government has kept RuPay debit cards free of MDR, how can anyone think we are acting under foreign pressure?” an official said.
Fund planned for small merchants
The government has argued that completely subsidising every UPI transaction may not be the best long-term approach for a rapidly expanding digital-payments network. Officials said some transactions need to bear a cost if India wants to build and sustain its own payment institutions.
The Centre will also create a dedicated fund to strengthen UPI adoption among small merchants. Five percent of MDR collections will be contributed to the fund, which will be used to promote digital-payment acceptance and support sustained UPI usage among smaller businesses.
The government believes the new framework could encourage new entrants and give smaller existing payment firms more space to compete with established platforms. While the MDR proposal remains politically contentious, the key test for the Centre will be ensuring that consumers are not charged extra for using UPI at the point of purchase.
