India’s new UPI merchant discount rate framework, set to take effect in October 2026, aims to ensure long-term sustainability of digital payments by applying a narrow fee only to transactions above ₹2,000, with protections for small merchants and reassurances that consumers will not bear the costs.
India’s new UPI merchant discount rate framework has triggered a wave of concern and confusion, but the key change is narrower than many users fear. According to the National Payments Corporation of India, a 0.4% fee will apply only to person-to-merchant transactions above ₹2,000, from 15 October 2026, while person-to-person transfers will remain free. For a single transaction of ₹75,000 or more, the charge will be capped at ₹300, giving banks, payment apps, fintech firms and corporate systems time to adjust. Reuters-style reporting from Indian newspapers has also said the Reserve Bank of India has backed the move as a way to improve the long-term sustainability of the digital payments ecosystem.
Startup Policy Forum has sought to calm the debate with a newspaper advertisement that tackled six common misconceptions about the new framework. Its central message is that the merchant discount rate is not a consumer fee and cannot be passed directly on to users as a separate charge. The forum also said merchants with monthly receipts of up to ₹1 lakh will not pay the levy, a protection that appears aimed at shielding smaller shops and neighbourhood businesses. Industry executives quoted in the advertisement argued that the change could help create a more durable revenue model for payments companies and support further investment in the sector.
The clarification matters because some of the sharpest criticism has come from political parties and small-trader groups, which have portrayed the fee as an added burden on shopkeepers. Finance Minister Nirmala Sitharaman, however, has said the MDR is not a government tax and will not be paid by consumers; instead, she said, it will be borne within the merchant payment chain. The distinction is important in a system where UPI has become the dominant way many Indians pay for everyday purchases, and where the policy challenge is to preserve free use for consumers while finding a way to fund the infrastructure behind the service.
There are also practical limits on how merchants might respond. Reporting in the Times of India says NPCI has not introduced a separate daily cap on repeated payments to the same merchant, so splitting a larger bill into smaller ₹2,000 payments is not currently barred. That leaves the framework open to behavioural workarounds, even as officials and industry participants argue that the wider aim is to strengthen security, keep innovation moving and give India’s fast-growing payments network a clearer economic basis. For supporters, the change is less a retreat from the idea of free UPI than an attempt to make that model sustainable over the long term.
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