Union finance minister Nirmala Sitharaman on Friday clarified that the Merchant Discount Rate (MDR) on UPI transactions is not a government charge and will not burden consumers.Sitharaman clarified that consumers will not have to pay Merchant Discount Rate (MDR) charges on UPI transactions above Rs 2,000 and, rather it will be borne by traders, merchants, bankers and other participants in the payment ecosystem.Sitharaman said that the MDR is a charge for services provided by entities including NPCI, aggregators, service providers, POS machine providers and merchant banks, and is not imposed by the government.Countering claims that the burden of the charges will fall on customers, she said, “They are not right. They are not correct. Because 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. So, let’s first understand, this is not a government issue.”
How MDR works on UPI transactions
Explaining the Merchant discount rate or MDR, the minister said, “The MDR is being charged by NPCI, the aggregator, the service provider, those who provide the POS machines and the merchant bank. They are the ones providing the service for transactions above Rs 2,000. The merchant is the one who is going to pay. That money is not coming to the Government of India and we are not imposing it. And this will not be passed on to the customer. In fact, it will not be charged even to the merchant for transactions below Rs 2,000.”She further said the charge would not be reflected as a cost for consumers on their bills.Sitharaman added, “… We are saying that under UPI, above Rs 2,000, the charge will be borne by the trader, the merchant, bankers and others. It cannot be passed on to the consumer, and your bill will reflect that.”The clarification comes as the newly announced Rs 2,000 charge continues to get surrounded by speculations.
Possible impact
NPCI managing director and CEO Dilip Asbe had earlier stated that the possibility of consumers ultimately bearing the cost is confined to around 10 per cent of the overall value on which MDR is collected.Asbe, speaking at the 13th SBI Banking & Economics Conclave 2026, said a large portion of UPI activity does not come under the MDR charging framework. Around 75 per cent of the overall UPI transaction value is outside the framework, he said.UPI currently handles around Rs 30 lakh crore in transaction value, of which merchant payments account for about Rs 6-7 lakh crore. The charging framework is primarily applicable to transactions above Rs 2,000.“75 per cent of this merchant on the QR code has not received the transaction below about Rs 2,000… So, 75 per cent has not even seen a single transaction about Rs 2,000. So there is absolutely no impact of our policy back to them,” Asbe said.
MDR collections concentrated among larger businesses
The remaining MDR collections are also concentrated among larger businesses. Around 80 per cent of MDR collected comes from businesses with annual GMV and digital payment collections exceeding Rs 1,000 crore, Asbe said. These businesses already accept credit cards and pay significantly higher charges, and NPCI believes they are less likely to pass the UPI charges on to customers.Businesses with annual turnover of Rs 1 crore and above could account for another 10 per cent of MDR collections, according to Asbe. These businesses too accept credit cards and may not necessarily transfer the cost to customers.That leaves around 10 per cent of MDR collections where there could be a possibility of consumers being charged, Asbe said.“The banks and NPCI, the acquirers, the payment aggregators will have to work towards ensuring that the charges are not passed back… The real risk of charging consumer getting charged is 10 per cent of the overall value,” Asbe said.
UPI transaction growth and long-term plans
Meanwhile, UPI transaction value is expected to rise by around 10 per cent this year, while transaction volumes could grow by 15-17 per cent, Asbe said.He attributed the slower pace of growth mainly to reduced investment by ecosystem participants following the first five to six years of heavy investment in UPI infrastructure. The lack of a revenue model had prompted participants to scale back investments, while education, awareness and trust could also influence growth.Asbe said the longer-term objective is to take UPI usage to a billion users and create infrastructure that can enable wider access to credit, investments and insurance.