UPI MDR decision completely professional, no external pressure: FM Sitharaman

Finance Minister Nirmala Sitharaman has rejected as "absolutely baseless" allegations by the Opposition that the decision to levy a 0.4 per cent Merchant Discount Rate (MDR) on specified UPI transactions above Rs 2,000 was taken under external pressure, saying it was a professional decision by the payment ecosystem.

Talking to PTI, Sitharaman said the decision was completely professional, and it was taken jointly by the National Payments Corporation of India (NPCI), payment banks and merchant banks, and not imposed by the government.

She rubbished the Opposition's allegations that the government had yielded to foreign pressure, saying the MDR was not a tax and would not accrue to the government.

"Absolutely baseless. And I totally deny it," she said when asked about Opposition allegations that the decision on Unified Payments Interface (UPI) MDR was taken under external pressure, particularly from the US.

The Finance Minister said the Opposition was “searching for issues” and making allegations without fully understanding the matter.

MDR not a tax, says Finance Minister

Also dismissing criticism by Opposition parties, including the Congress, that it is a tax on consumers, Sitharaman said, "this is not a tax, this is not a cess, this is not even a surcharge. And the collection is not coming to the Consolidated Fund of India."

The collected amount will be shared among banks and other entities in the UPI ecosystem. Of the MDR collected, 40 per cent will go to customers' banks, 30 per cent to payment gateways, 20 per cent to the UPI app and the remaining 10 per cent to the sponsoring bank of the UPI app.

MDR rules to take effect from October 15

From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more. Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free.

Essential services, such as railways, telecom, fuel and insurance, will attract a flat Rs 5 fee per transaction above Rs 2,000. Capital markets transactions (mutual funds, stockbroking) get a lower 0.02 per cent rate, also capped at Rs 300.

Small merchants remain exempt

Small merchants collecting up to Rs 1 lakh a month via UPI QR codes remain fully exempt from any new charge and shield about 96 per cent of all merchant transactions.

The NPCI, which operates the UPI platform, on September 15, issued a circular providing for MDR on certain UPI transactions, with the move aimed at creating a sustainable revenue framework for the digital payments ecosystem.

A dedicated fund for promoting the use of UPI by small merchants will be set up, with a contribution of 5 per cent of total MDR collections. This initiative will expand UPI acceptance, encourage sustained usage, and accelerate the inclusion of small businesses in India's digital payments ecosystem.