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UPI merchant fee row

A planned 0.4% fee that shops would pay on UPI payments above ₹2,000 has split the government, the opposition and traders, and is on hold until after Diwali.

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The question

Is a fee on larger UPI payments to shops needed to keep UPI running, or will it push shops back to cash?

0.4%proposed fee on UPI payments to merchants above ₹2,000, capped at ₹300 a paymentPIB
About 96%share of merchant UPI payments the government says will stay freePIB
₹20,000 croreindustry estimate of UPI's yearly running cost, cited by NPCIDepartment of Financial Services · The Telegraph
₹15,000 crorerevenue the fee is expected to raise, per an official quoted by The Indian ExpressThe Indian Express
After Diwalinew start date, after NPCI deferred the 15 October launch on 13 OctoberNPCI
Context

How we got here

UPI (Unified Payments Interface) is India's instant mobile payment system, run by the National Payments Corporation of India (NPCI). A merchant discount rate (MDR) is a fee a shop pays to banks and payment companies for each digital payment it receives. Since January 2020 shops have paid no MDR on UPI or RuPay debit card payments; instead the government paid banks and apps a yearly subsidy. Industry estimates put UPI's running cost at about ₹20,000 crore a year, while the largest yearly subsidy was ₹3,631 crore, in 2023-24. In 2026 Parliament amended the law that barred MDR on these payments, so the government can now allow it by notification. Congress says Finance Minister Nirmala Sitharaman denied any MDR plans in August. On 15 September 2026 NPCI announced a 0.4% fee on larger merchant payments from 15 October. Opposition parties called it a 'UPI tax' imposed under US pressure, which the government denies. Traders protested, and on 13 October NPCI postponed the start to after Diwali.

What it means for India

Customers are not meant to pay anything: person-to-person transfers and shop payments up to ₹2,000 stay free, and merchants are told not to add the fee to bills. A shop taking a ₹5,000 UPI payment would pay ₹20. Bills for railways, fuel, telecom and insurance above ₹2,000 carry a flat ₹5 fee instead. Small merchants receiving up to ₹1 lakh a month through UPI QR codes stay exempt. Traders warn some shops may ask for cash on bigger bills.

In their own words

Where each side stands

Government and NPCI

The government says MDR is 'neither a tax nor a charge collected by the Government or NPCI'; it goes to banks and payment apps to fund security, infrastructure and expansion. Person-to-person transfers and payments up to ₹2,000 stay free, merchants may not pass the fee to customers, and NPCI calls the yearly subsidy 'short-term bridge funding'. The finance ministry called claims of foreign pressure 'false'.

PIB · The Telegraph · Swarajya · The Indian Express
Congress and opposition parties

Rahul Gandhi called it a 'UPI tax' and alleged it was imposed under US pressure to help American card companies. Congress president Mallikarjun Kharge called it a 'surrender', and SP, AAP, RJD and CPI leaders also criticised it. CPI's D. Raja said merchants always find ways to pass new costs on to consumers.

The Indian Express
Traders and retailers

The Retailers Association of India warned that during festivals 'cash becomes the path of least resistance' once a fee attaches to digital payments. Traders in Madhya Pradesh held a 'No UPI Day'. The Confederation of All India Traders (CAIT), led by BJP MP Praveen Khandelwal, sought a delay and a phased fee starting at 0.2%.

BBC News · The Hindu · Mint
Fintech industry

MobiKwik CEO Bipin Preet Singh said UPI subsidies come from 'tax payers' pocket' and market-linked pricing ties the cost to large businesses that benefit. The Payments Council of India had pressed for years for a controlled fee on larger merchants.

BBC News · The Telegraph
6 moments

The timeline

  1. NPCI defers UPI merchant fee until after Diwali; Congress asks if a full rollback is next

    The 15 October start is off; NPCI will announce a new date after Diwali.

  2. Traders call off nationwide 'No UPI Day' after meeting Sitharaman; seek phased fee

    Traders proposed a phased fee starting at 0.2% instead of 0.4% from day one.

  3. Traders in Madhya Pradesh cover QR codes in 'No UPI Day' protest against the fee

    Shops in Bhopal, Indore, Jabalpur, Gwalior and other cities covered their UPI QR codes.

  4. Sitharaman says UPI fee is 'not a tax' and accuses opposition of spreading confusion

    Sitharaman: the fee is a charge between payment operators, not a government levy.

  5. Opposition calls UPI fee a 'tax' under US pressure; finance ministry says the claim is false

    Rahul Gandhi: 'Modi ji, roll back the UPI tax. Now.'

  6. NPCI announces 0.4% fee on UPI payments to merchants above ₹2,000 from 15 October

    0.4% on merchant payments above ₹2,000; capped at ₹300 for payments of ₹75,000 or more.

Honest gaps

What we still don't know

  • ?The new start date after Diwali, and whether the rate or thresholds will change.
  • ?Whether merchants will absorb the fee, raise prices, or steer customers to cash.
  • ?Whether fees will later be extended to more kinds of UPI or RuPay payments.
  • ?How the Supreme Court will rule on a petition against the fee; it has asked NPCI, the Centre and the RBI to file affidavits by late October.
Who reported this

Sources

Left-leaning · 2Centre · 4Right-leaning · 2Official record · 1International · 1

10 outlets across the spectrum. Leanings are a rough guide to who reported it, not a verdict on accuracy.

  1. PIBUPI Continues to Remain Free for Peer to Peer Transactions and 96% of Merchant Transactions
  2. Department of Financial ServicesFAQs - Merchant Discount Rate (MDR) on Select UPI (P2M) Transactions
  3. The Indian ExpressRs 15,000 crore: What the UPI levy will fetch, and why the government is backing it
  4. NPCIUPI MDR on Select Merchant Transactions Shall be Implemented Post Diwali
  5. SwarajyaGovernment Rejects Foreign 'Pressure' Claims Over New UPI Merchant Fee Framework, Says Decisions Made Independently
  6. The Indian ExpressUPI fee hike: Opposition alleges US pressure; false, says government
Show all 12 sources
  1. BBC NewsThe small fee raising big questions for India's payments revolution
  2. The HinduMadhya Pradesh traders, retailers observe 'No UPI Day', seek rollback of MDR charges
  3. MintTraders' associations call off 'No UPI Day' protest on 2 October after assurance from Finance Minister Sitharaman
  4. The TelegraphWhy UPI is putting a price on big merchant payments after years of subsidy concerns
  5. News18 (PTI)'U-turn on the U-turn': Congress questions govts deferment of UPI MDR
  6. The HinduNPCI pushes back UPI MDR rollout to 'immediately after Diwali'
UPI merchant fee row | Spasht