The Opposition on Tuesday attacked the Centre over the introduction of a Merchant Discount Rate (MDR) on certain UPI payments to businesses, with Congress leaders describing the new levy as a “Modi tax” and arguing that merchants would eventually pass the additional cost on to consumers. The criticism followed the government’s decision to introduce a 0.4 per cent MDR on person-to-merchant UPI transactions exceeding ₹2,000 from October 15, ending nearly six years of zero MDR for merchants using the payment system.
The new charge will apply to eligible payments made by customers to businesses and not to person-to-person transfers. Transactions between individuals will continue to remain free irrespective of their value. Merchant payments of up to ₹2,000 will also remain outside the new MDR regime, covering more than 95 per cent of person-to-merchant transactions by volume.
Congress targets Centre
Congress media and publicity department head Pawan Khera termed the new levy a “Modi tax”, arguing that the government had promoted UPI and the idea of a cashless economy before introducing charges on its use by merchants. The Aam Aadmi Party also attacked the Centre over the decision, while Indian Union Muslim League Rajya Sabha MP Haris Beeran argued that businesses paying the fee could eventually recover the additional expense from customers.
Leader of Opposition in the Lok Sabha Rahul Gandhi raised a similar concern, questioning the distinction between keeping UPI free for consumers and imposing a charge on merchants. He argued that businesses could incorporate the additional expense into product prices, effectively shifting the burden to buyers. Gandhi also alleged that the decision reflected pressure from American payment companies, which he said had opposed India’s zero-MDR framework.
Kharge attacks move
Congress president Mallikarjun Kharge accused the government of introducing a “digital payments tax” at a time when households were already facing pressure from rising prices. The Congress argued that imposing a cost on merchants could weaken one of the central attractions behind UPI’s rapid expansion — the ability of businesses and customers to transact digitally without a transaction charge.
The political criticism is likely to centre on whether merchants absorb the MDR or recover it indirectly through higher prices. The government has maintained that consumers themselves will not be directly charged under the new framework.
₹5 for key sectors
Under the revised structure, a 0.4 per cent MDR will apply to person-to-merchant UPI transactions above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 and above. A different structure has been created for essential and low-margin sectors, including railways, telecom, insurance, fuel and agricultural inputs. Merchants in these categories will pay a flat ₹5 MDR for each eligible transaction exceeding ₹2,000.
These sectors account for around 17 per cent of person-to-merchant UPI transactions by volume but approximately 46 per cent by value. Person-to-person transfers, meanwhile, account for around 37 per cent of UPI transaction volume and 70 per cent of value and will continue without an MDR regardless of the amount transferred.
The new regime has consequently opened a political debate over who ultimately bears the cost of sustaining India’s enormous digital payments infrastructure. While consumers will not face a direct UPI fee under the announced structure, the Opposition maintains that charges imposed on businesses could indirectly find their way into prices, turning the merchant levy into a cost ultimately borne by customers.