For years, digital payments through UPI (Unified Payments Interface) and RuPay debit cards have been free for merchants, thanks to government subsidies. However, the Indian government is now considering reintroducing merchant discount rates (MDR) on UPI and RuPay transactions, especially for businesses with an annual turnover above ₹40 lakh. This move aims to reduce the financial burden on banks and fintech firms that process these transactions at zero cost.
UPI Charges in India
| Topic | Key Takeaways |
|---|---|
| What’s Changing? | The government plans to introduce MDR charges for UPI and RuPay transactions. |
| Who Will Be Affected? | Merchants with an annual turnover above ₹40 lakh based on GST filings. |
| Why the Change? | To ease financial pressure on banks and payment service providers. |
| Will Small Businesses Be Affected? | No, those with turnover below ₹40 lakh will still enjoy zero-MDR transactions. |
| Expected Impact on Consumers | No direct charges for consumers, but merchants may pass costs to them. |
| Government’s Stance | Evaluating a tiered MDR model for fairness and sustainability. |
The proposed MDR charges on UPI and RuPay debit card transactions will primarily impact large merchants, while small businesses remain unaffected. This move aims to create a sustainable digital payment ecosystem where banks and fintech companies are compensated for processing transactions. Consumers won’t be directly affected, but indirect price adjustments might occur. It is crucial for merchants to explore alternative payment strategies to adapt to these changes.
Why the Government Is Introducing MDR on UPI and RuPay
Since 2016, UPI has revolutionized digital payments in India. With nearly 12 billion transactions per month (as of February 2025), UPI has become a preferred payment method due to its simplicity and zero cost for users and merchants.
However, banks and fintech firms process UPI transactions without earning any fee, making it financially unsustainable. In the Union Budget 2025, the government reduced subsidies for UPI payments from ₹3,500 crore to ₹437 crore, increasing pressure on banks. To counter this, the government is now planning to introduce MDR on high-turnover merchants.
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What Is Merchant Discount Rate (MDR)?
MDR is a fee charged to merchants for processing digital payments. Currently, Visa, Mastercard, and other card-based payments already have MDR fees, while UPI and RuPay do not.
Expected MDR Charges for UPI & RuPay
- Merchants above ₹40 lakh turnover will be required to pay MDR fees.
- Smaller merchants (below ₹40 lakh turnover) will continue to enjoy zero-MDR UPI payments.
- The government is considering a tiered MDR system, where larger merchants pay higher charges.
How Will It Impact Merchants and Consumers?
For Merchants
- Larger merchants will bear additional costs for accepting UPI and RuPay payments.
- Small businesses remain unaffected under the zero-MDR policy.
- Merchants may choose to pass the MDR cost to consumers through price hikes or additional transaction fees.
For Consumers
- No direct charges for using UPI or RuPay debit cards.
- Potential higher prices for goods and services as businesses adjust to MDR fees.
- Some merchants may encourage cash payments to avoid fees.
Comparison: UPI vs Other Payment Methods
| Payment Method | MDR Charges (Expected) | Who Pays the Charge? |
|---|---|---|
| UPI (Current) | 0% (No charge) | No one (Govt subsidized) |
| UPI (Proposed) | 0.5% to 2% (Estimated) | Merchants above ₹40 lakh turnover |
| RuPay Debit Cards | 1% to 2% (Proposed) | Merchants above ₹40 lakh turnover |
| Visa/Mastercard Debit Cards | 1% – 2.5% | Merchants |
| Credit Cards | 1.5% – 3% | Merchants |
Alternatives for Merchants to Avoid MDR Costs
If MDR charges are introduced, merchants can explore alternative strategies:
1. Offer Cash Discounts
Encouraging cash payments by offering small discounts can help merchants avoid digital transaction fees.
2. Use Other Digital Payment Options
Merchants can compare MDR rates of different payment providers and choose the most cost-effective.
3. Increase Prices Strategically
If MDR charges are applied, some merchants may adjust product pricing to absorb costs instead of passing them on separately.
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UPI Charges in India FAQs
1. Will UPI transactions become costly for consumers?
No, consumers won’t pay any fees for using UPI. However, merchants might increase product prices to balance MDR charges.
2. Will small businesses be affected?
No. Businesses with turnover below ₹40 lakh will continue to enjoy zero MDR fees.
3. How much MDR will merchants have to pay?
Though not confirmed, MDR charges are expected to range between 0.5% to 2% depending on transaction value and merchant turnover.
4. Can merchants refuse UPI payments to avoid charges?
Merchants can choose not to accept UPI payments, but doing so might impact their business, as UPI is a widely used digital payment method.
5. When will the new MDR policy be implemented?
The government is currently reviewing this proposal, and an official decision is expected in mid-2025.
