UPI MDR Above ₹2,000: Sitharaman Says Charge Is Not Tax, Won’t Be Added To Customer Bills

Finance Minister Nirmala Sitharaman has said the proposed Merchant Discount Rate (MDR) of 0.4 per cent on UPI transactions above ₹2,000 is neither a tax nor a cess and will not mean an additional charge for customers.

Speaking to PTI, Sitharaman said the money collected through the proposed MDR would not go to the government or be credited to the public exchequer. Instead, it would be distributed among entities involved in processing UPI payments, including the National Payments Corporation of India (NPCI), banks, point-of-sale (POS) machine providers and merchant banks.

How The Proposed UPI MDR Will Work

Sitharaman said the perception that the government was imposing a tax or surcharge on UPI transactions was based on a misunderstanding of the proposed arrangement.

According to the finance minister, the 0.4 per cent MDR would be an arrangement between participants in the digital payments ecosystem. The proceeds would be shared among the four entities involved in processing and facilitating the transactions.

She said the proposed MDR would not be added separately to customers’ bills.

To explain the mechanism, Sitharaman referred to card payments, where merchants pay MDR on transactions made through Visa, debit or credit cards. Customers generally do not see MDR listed as a separate charge on their bills.

For instance, a customer purchasing goods worth ₹5,000 would continue to receive a bill of ₹5,000, along with applicable GST, without a separate MDR charge, she said. The same principle, according to Sitharaman, would apply to the proposed UPI MDR.

Government Won’t Receive MDR Proceeds

Sitharaman stressed that the proposed charge would not go into the government treasury. The government, she said, would also not determine whether merchants ultimately pass the cost on to customers.

She argued that merchants benefit from digital payments by being able to expand their businesses and that the cost of processing such transactions should therefore be managed among merchants, banks and other service providers.

The finance minister also rejected criticism that the proposal amounted to imposing a new tax on UPI payments, saying such claims did not reflect how the proposed MDR arrangement would operate.

The proposal comes against the backdrop of the rapid expansion of UPI as a digital payments platform, with the MDR mechanism intended to compensate participants involved in processing transactions.