Archive · 25 Sep 2026
Government urges banks to shield consumers from new UPI fees
The government is changing some rules about fees for certain UPI payments.
It is asking banks and traders to make sure customers do not pay these fees directly.
Payments between two people will still be free.
Payments to merchants up to Rs 2,000 will also remain free of MDR.
Some larger merchant payments will have a 0.4% fee.
The government says about 96% of merchant payments will not be affected.
Banks will explain the changes in local languages.
Officials say merchants already pay fees for credit cards and should not stop using UPI because of these charges.
The GST Council may also review the tax added to some UPI fees.
The government has advised banks and traders to prevent merchants from passing UPI MDR costs to consumers.
Banks are expected to launch UPI awareness campaigns in every regional language.
From October 15, person-to-person UPI payments will remain free, while merchant payments up to Rs 2,000 will retain zero MDR.
A 0.4% MDR will apply to specified merchant UPI payments above Rs 2,000, with lower or fixed rates for some categories.
The GST Council may review the 18% tax on eligible UPI MDR, while subsidies for smaller merchants may continue.
- Who
- The government, banks, merchants, the Confederation of All India Traders, and the Indian Banks' Association.
- What
- Banks and traders are being urged to prevent merchants from passing eligible UPI Merchant Discount Rate costs to consumers.
- When
- The new framework is scheduled to take effect on October 15; the GST Council is scheduled to meet on October 7.
- Where
- The measures concern UPI payments and bank awareness campaigns across regional languages.
- Why
- The government says limited MDR charges are needed to help cover UPI ecosystem costs and does not expect them to cause a major shift to cash.
Government rationale
Consumer and merchant concerns
Whether MDR will harm UPI use
Government rationale
Officials say merchants already absorb higher fees on credit cards and argue that concerns about users moving to cash are misplaced.
Consumer and merchant concerns
The new framework creates eligible UPI fees, raising concern that merchants could pass costs to consumers or that users could split transactions to avoid charges.
Tax treatment of MDR
Government rationale
The government hopes the GST Council will take a favourable and reasonable view of the 18% GST applied to eligible MDR.
Consumer and merchant concerns
The tax adds to the cost of eligible merchant UPI payments, although the articles do not identify a formal opposing position from the GST Council.
- Person-to-person UPI payments
- Remain completely free under the new framework.
- Merchant payments up to Rs 2,000
- Continue to attract zero MDR.
- MDR above Rs 2,000
- A 0.4% rate will apply to specified person-to-merchant transactions.
- Affected transactions
- The government says about 96% of person-to-merchant transactions will remain unaffected.
- GST on MDR
- An 18% GST applies to eligible person-to-merchant UPI MDR and may be reviewed by the GST Council.
- Small-merchant subsidy
- The government is likely to continue subsidies for UPI payments under Rs 2,000 made to merchants with annual turnover below Rs 50 crore.
- Comparable card fees
- Debit and credit card MDR is broadly in the range of 1% to 3%.