UPI MDR row: Rahul Gandhi demands rollback, Centre rejects ‘UPI tax’ claim

PTC Web Desk:  The new Merchant Discount Rate (MDR) on certain UPI payments has turned into a political controversy, with Congress leader and Leader of Opposition in the Lok Sabha Rahul Gandhi demanding its withdrawal, while the Centre has rejected the Opposition’s allegations and said the move was taken independently.

Rahul Gandhi on Wednesday described the new MDR as a “UPI tax” and called for an immediate rollback. He also alleged that the decision was linked to pressure from the United States and could benefit American payment companies. The government, however, has rejected both claims.

The Finance Ministry said MDR was not a tax and was not collected by either the government or the National Payments Corporation of India (NPCI). Instead, the fee would be shared among participants in the payment ecosystem, including banks and payment service providers.

Also Read | UPI payments above Rs 2,000 to attract 0.4% MDR: What users and merchants need to know

What has changed for UPI payments?

Under the new framework, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above Rs 2,000. The charge will be capped at Rs 300 for transactions of Rs 75,000 and above.

The new system is scheduled to come into effect from October 15.

For example, if an eligible merchant receives a UPI payment of Rs 10,000, the MDR at 0.4% would amount to Rs 40. The charge is meant to be borne within the merchant payment ecosystem and cannot be passed on to customers, according to the government's clarification.

The government has also stressed that ordinary users will not be charged for sending money through UPI. Person-to-person transactions will remain free regardless of the amount.

Payments to merchants up to Rs 2,000 will also continue without MDR. Small merchants covered under the zero-MDR framework will remain exempt as well.

According to the Finance Ministry, around 96% of merchant transactions will remain outside the new MDR framework.

Rahul Gandhi attacks Modi government

Taking a dig at Prime Minister Narendra Modi, Rahul Gandhi demanded that the new framework be withdrawn. He referred to the MDR as a “UPI tax” and alleged that the government was changing the existing zero-MDR system under pressure from the United States.

Rahul Gandhi also invoked former Prime Minister Indira Gandhi while criticising the Centre's position on the issue. He argued that the new arrangement could eventually result in a significant flow of money to foreign payment companies.

The Congress has separately alleged that the move could help US-based card networks such as Visa and Mastercard compete with India's UPI ecosystem. Party leaders have pointed to earlier concerns raised by the US Trade Representative about the limited participation of American electronic payment service providers in India's UPI market.

Centre rejects foreign pressure allegation

The Finance Ministry has strongly rejected the suggestion that the MDR decision was made because of pressure from Washington.

In its clarification, the ministry said India's UPI policy decisions are made independently. It said the broader objective is to create a payment system that can sustain its own operational costs while remaining affordable and accessible.

The government has argued that the UPI ecosystem has expanded rapidly while the costs of running payment infrastructure have so far been largely supported by banks, payment companies and government-backed mechanisms.

The Centre said the new framework is intended to provide a revenue mechanism for participants in the payment ecosystem without putting a direct charge on consumers.

Government says customers will remain protected

The Finance Ministry has also said banks have been advised to ensure merchants do not recover the MDR from customers.

This means consumers will continue to be able to send money to friends and family, pay small amounts at shops and use UPI without a transaction fee.

The government has also said UPI apps will not be allowed to impose separate platform charges on users under the new arrangement.

Why the issue has become political

The dispute is largely over whether introducing MDR on selected merchant transactions will strengthen the long-term financial sustainability of UPI or weaken one of India's biggest digital payment advantages.

The Congress has raised concerns about the possible impact on merchants and consumers, while the Centre says the structure has been designed to keep everyday UPI payments free.

The government had also indicated in August that any future MDR would be limited to selected transactions above a threshold and that consumers would not be charged.