Sitharaman defends UPI MDR amid opposition and industry concerns (Img: X)
New Delhi: Union Finance Minister Nirmala Sitharaman on Monday defended the upcoming Merchant Discount Rate (MDR) on certain UPI transactions above Rs 2,000, saying the charge is “neither a tax nor a cess” and accusing the opposition of spreading misinformation.
Sitharaman said the MDR would be levied by service providers to support the payment ecosystem and improve services. She stressed that the charge would not apply to smaller UPI transactions or be passed on to consumers.
“It does not apply to transactions below Rs 2,000. It is neither a tax nor a cess; the funds will not be deposited into the Consolidated Fund of India… Moreover, it is a charge between operators; it will not be passed on to the consumer. The burden does not fall on the customer. I provided a clarification on this very point when the issue was raised during the parliamentary session. Spreading misinformation, fueling debates based on it, and using that narrative to attack the government has become a habit for the opposition. This is wrong; there is an effort to spread misconceptions and mislead the public. The public needs to remain vigilant," she said.
A 0.4 per cent MDR will come into effect from October 15 for specified person-to-merchant UPI transactions above Rs 2,000, with the charge capped at Rs 300 per transaction. Person-to-person payments will remain free. Merchant payments up to Rs 2,000 and transactions covered by the zero-MDR framework for small merchants will also remain free.
Lok Sabha Leader of Opposition Rahul Gandhi had earlier described the proposed charge as “UPI tax” and called for its immediate withdrawal.
Santosh Katariya, President of the Clothing Manufacturers Association of India (CMAI), said introducing MDR during the festive season could create additional pressure for merchants and retailers.
“This period is critical for merchants, retailers and consumer-facing businesses, many of whom are already working hard to revive demand and improve margins. Adding another cost to digital transactions at this juncture risks putting further pressure on an ecosystem that is still finding its footing," he said.
Katariya said UPI had helped drive consumption and formalisation, arguing that any increase in digital payment costs should be carefully calibrated.
Dr Ashish Chandra, Founder and CEO of GFF AI PTE. LTD., Singapore, said even a modest charge could affect businesses operating on thin margins.
“A Rs 40 fee on a Rs 10,000 transaction, for instance, represents 20% of the profit on a sale made at a 2% net margin. This makes transparency around costs, exemptions and settlement deductions particularly important," he said.
Chandra also called for payment providers to publish service metrics covering transaction success rates, outages, refunds, settlements, disputes and fraud-related losses.
