Consumers making digital payments above Rs 2,000 to merchants via the Unified Payments Interface will not face any deduction toward the 0.4 percent Merchant Discount Rate (MDR). Financial institutions are preparing nationwide awareness initiatives to dispel misconceptions surrounding these transaction charges. Official communications have clarified that the government receives no revenue from the MDR collected on high-value digital payments, as the entire proceeds are distributed across banks and key participants supporting the payment infrastructure.
GST Council Review And Fee Slabs
Deliberations are anticipated within the GST Council regarding the justification of levying Goods and Services Tax on UPI transactions above Rs 2,000. Under the structural guidelines coming into effect from October 15, 2026, a 0.4 percent MDR applies to person-to-merchant payments exceeding the Rs 2,000 threshold. For transactions valued at Rs 75,000 or higher, this fee has been capped at a maximum of Rs 300. Routine micro-payments and all person-to-person transfers remain completely exempt from any such levy.
Addressing Concerns Over Cash Reversion
Market observers previously warned that introducing a merchant discount rate on transactions exceeding Rs 2,000 might prompt cost-conscious shoppers and neighbourhood merchants to revert to physical cash. Some retail groups also expressed reservations, indicating a willingness to encourage cash exchanges over digital alternatives. Addressing these reactions, authorities reiterated that customers will never be billed for this 0.4 percent MDR, tasking banking partners with conducting informative campaigns to reassure market participants.
Consultations With IBA And CAIT
To align industry expectations, discussions are scheduled with the Indian Banks' Association (IBA). Engagement will also extend to merchant representative bodies, including the Confederation of All India Traders (CAIT), ensuring smaller retailers understand the scope of the policy and their operational concerns are resolved directly.
Framework Effective From October 15
The revised structure taking effect on October 15, 2026 targets specific person-to-merchant (P2M) payments and is not designed to burden retail buyers. Customers using standard UPI apps or scanning store codes will not be asked to pay any surcharge over their bill amount.
