The Chamber of Trade and Industry (CTI) has urged the Centre to reconsider the proposed Merchant Discount Rate (MDR) on eligible UPI merchant payments above Rs 2,000, warning that the additional cost could discourage digital payments and make cash more attractive for some businesses.
CTI Chairman Brijesh Goyal has written to Finance Minister Nirmala Sitharaman seeking a rollback of the proposed charge, which is scheduled to take effect from October 15, 2026.
Under the new framework, eligible person-to-merchant UPI transactions above Rs 2,000 will attract an MDR of 0.4%, subject to a maximum charge of Rs 300 per transaction. Person-to-person UPI payments will continue to remain free.
Eligible small merchants receiving up to Rs 1 lakh a month through UPI QR payments will also be exempt from the MDR.
CTI Raises Concern Over UPI Charges
Goyal said the proposed change has caused concern among traders, shopkeepers and entrepreneurs who have increasingly shifted to digital payments.
CTI has argued that the additional cost could make merchants reconsider accepting UPI for larger-value transactions. The organisation estimates that UPI payments above Rs 2,000 could decline by up to 50% after the MDR is introduced.
CTI has also raised concerns that some customers and merchants could return to cash for high-value purchases.
Why Rs 2,000 Is Important
The debate is centred not just on the number of UPI transactions but also on their overall value.
According to figures cited by CTI, UPI processed around 24,162 crore transactions worth approximately Rs 314 lakh crore in financial year 2025-26. Merchant payments accounted for around Rs 198 lakh crore of the total value.
CTI said transactions above Rs 2,000 accounted for only about 4% of the total number of UPI transactions but represented approximately Rs 131 lakh crore in value.
| UPI Metric | FY 2025-26 |
|---|---|
| Total UPI transactions | 24,162 crore |
| Total transaction value | Around Rs 314 lakh crore |
| Merchant payments cited by CTI | Around Rs 198 lakh crore |
| Value of transactions above Rs 2,000 cited by CTI | Around Rs 131 lakh crore |
Government data shows the scale of UPI has expanded sharply, with annual transactions rising from 1.78 crore in FY2016-17 to more than 24,162 crore in FY2025-26.
How Much Will the UPI MDR Cost?
Under the proposed 0.4% MDR, an eligible Rs 3,000 UPI merchant payment would attract a charge of Rs 12, while a Rs 10,000 transaction would incur Rs 40.
A Rs 50,000 eligible transaction would attract Rs 200 in MDR. The charge would be capped at Rs 300 for transactions of Rs 75,000 and above.
The MDR is a merchant-side payment-processing charge. The government has advised banks to ensure that merchants do not pass the charge on to customers.
GST to Apply on MDR
GST will apply to the MDR rather than the underlying UPI payment, according to Prabhat Ranjan, Senior Director at Nexdigm, as cited by NDTV.
For example, on an eligible Rs 10,000 UPI payment, the 0.4% MDR would amount to Rs 40. An 18% GST on that processing charge would be Rs 7.20, taking the total payment-processing cost to Rs 47.20, subject to applicable caps and exemptions.
The GST is therefore a tax on the payment-processing service and not an additional tax on the customer’s purchase.
For GST-registered businesses, the GST component may ordinarily be available as input tax credit, subject to applicable conditions. Businesses unable to claim the credit could, however, face it as an additional cost.
Most Everyday UPI Payments to Remain Free
The proposed MDR framework does not apply to all UPI transactions.
Person-to-person payments, transactions up to Rs 2,000 and eligible small merchants receiving up to Rs 1 lakh a month through UPI QR payments will remain outside the standard 0.4% MDR framework.
The government has maintained that the new structure is intended to keep the vast majority of everyday UPI transactions free while introducing charges for eligible higher-value merchant payments.
CTI, however, has asked the Finance Ministry to reconsider the decision, arguing that traders have already made significant investments in digital payment infrastructure.
The impact of the new MDR structure will become clearer after October 15, when the framework is scheduled to come into effect.
