UPI MDR From October 15: Delhi Traders Say New Charge Could Push Customers Towards Cash

From October 15, a 0.4 per cent MDR will apply to eligible person-to-merchant (P2M) UPI transactions above Rs 2,000.

The charge will be paid by merchants and capped at Rs 300 for transactions of Rs 75,000 and above.

Source : Freepik

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Key points generated by AI, verified by newsroom

• New 0.4% MDR applies to UPI transactions exceeding Rs 2,000.
• Delhi traders express concern, contemplating encouraging cash payments.
• Government aims to sustain UPI, support smaller payment companies.

A new charge on select UPI transactions has become a concern for traders in Delhi, particularly retailers whose bills frequently cross the Rs 2,000 threshold. Some shopkeepers in Lajpat Nagar Central Market said they may encourage customers to use cash for larger purchases once the new Merchant Discount Rate (MDR) takes effect.

From October 15, a 0.4 per cent MDR will apply to eligible person-to-merchant (P2M) UPI transactions above Rs 2,000. The charge will be paid by merchants and capped at Rs 300 for transactions of Rs 75,000 and above.

Customers will not be charged the MDR. UPI payments between individuals and merchant transactions of up to Rs 2,000 will continue to remain free.

Delhi Retailers Concerned About Margins

The prospect of paying MDR is particularly relevant for businesses selling higher-value products.

Arjun Rawat, 40, who runs a crockery shop in Lajpat Nagar, said around 30-40 per cent of his payments come through Paytm or UPI. Speaking to Business Standard, he said most of his products are priced above the Rs 2,000 threshold.

“Our products are relatively expensive, so most transactions cross Rs 2,000. That means a large share of our UPI payments could attract the MDR,” Rawat said.

Garment retailer Deepak Nagpal, 43, also questioned why merchants should bear the cost after years of zero-MDR UPI transactions.

“I think the government has cheated us. UPI has been free since Covid, so why is the government charging us now? The burden should not be on us,” Nagpal said.

Jewellery shop owner Vijay Gupta described the MDR as another expense for retailers.

“This is an additional cost for us. We already pay 18 per cent GST, and there are charges on credit and debit card transactions. Now UPI will also have a charge,” Gupta said.

Cosmetics seller Anil Katharia raised concerns about the possibility of the rate increasing in the future.

“Today the charge is 0.4 per cent. Tomorrow, they could increase it further,” Katharia said.

Some Traders May Encourage Cash Payments

For retailers operating on tight margins, absorbing the MDR may not be straightforward.

Lalit Kalra, owner of Dayal Opticals, said his business could encourage customers to use cash for transactions that attract the charge.

“We will have to ask customers to pay in cash. We can’t help it, but we will encourage them to pay in cash,” Kalra said.

That prospect is not necessarily welcomed by customers who have become accustomed to digital payments.

“I hope shopkeepers do not pester us to pay in cash. After such widespread adoption of UPI, carrying cash everywhere is simply not practical,” said Karan Sharma, 35, a Delhi resident.

Small vendors with monthly UPI transactions below Rs 1 lakh will be exempt from MDR on individual transactions above Rs 2,000.

There will also be different charges for certain categories. Railways, telecom, insurance and fuel transactions will attract a flat Rs 5 fee above the applicable threshold, while capital-market transactions will carry an MDR of 0.02 per cent, capped at Rs 300.

The government has said around 96 per cent of P2M transactions will remain unaffected.

Why The Government Is Bringing Back MDR

The government has rejected allegations that the decision to introduce MDR was influenced by the US Trade Representative (USTR).

“The allegation that MDR has been introduced under any external influence is patently false and misleading,” the Department of Financial Services (DFS) said.

The government's stated rationale is to create a sustainable revenue model for the UPI ecosystem and give smaller domestic payment companies greater scope to compete.

The DFS said NPCI's 30 per cent market-share limit for third-party application providers, announced in November 2020, could not be implemented because smaller companies lacked a self-sustaining revenue model.

According to the government, MDR on selected high-value transactions is intended to provide such a revenue stream and enable more domestic companies to expand their operations.

The government also plans to increase the market share of BHIM UPI, developed by NPCI, which currently accounts for less than 1 per cent of UPI transactions.

PhonePe and Google Pay account for 45.64 per cent and 32.26 per cent of UPI transaction volumes, respectively, according to government sources.

UPI Has Grown Into A Large Payment Network

The new revenue framework comes after more than six years of zero MDR on merchant UPI transactions.

The government introduced the zero-MDR policy in January 2020, after an earlier MDR regime that had been in place intermittently following UPI's launch in 2016.

Since then, UPI has become a widely used payment method for both consumers and businesses. NPCI data showed 24.5 billion UPI transactions in August 2026 alone.

The government estimates the cost of providing a UPI transaction at around Rs 1.38. It said the 0.4 per cent MDR was decided after examining MDR rates in other countries, where charges were broadly between 0.3 per cent and 0.6 per cent.

GST On MDR May Also Be Examined

The 18 per cent GST applicable to MDR is another issue under consideration.

Government sources said GST-registered businesses can generally claim input tax credit on eligible business expenses, which can offset the tax incidence. Businesses below the applicable GST registration thresholds, Rs 40 lakh for goods and Rs 20 lakh for services, may not be registered taxpayers.

The GST Council could examine any remaining concerns, including situations where input tax credit is unavailable or where the additional tax burden has a disproportionate effect, sources said.

The government is also approaching payment aggregators to ensure that the MDR is not passed on to customers or imposed on merchants in a way that falls outside the framework.

For Delhi's retailers, however, the immediate question is how the new charge will affect the cost of accepting digital payments once the revised MDR rules come into effect on October 15.