Overview
The Union Finance Minister Nirmala Sitharaman has rejected opposition claims that the new MDR of 0.4% on selected UPI transactions above ₹2,000 was taken under foreign pressure. She said the decision was a professional, industry‑led move, not a government‑imposed tax.
Key Developments
- From 15 October 2026, a 0.4% MDR will apply to person‑to‑merchant UPI payments above ₹2,000.
- The charge is borne by merchants, not consumers, and is capped at ₹300 for transactions of ₹75,000 or more.
- Essential services (railways, telecom, fuel, insurance) will face a flat ₹5 fee per transaction above ₹2,000.
- Capital‑market transactions (mutual funds, stock‑broking) will be taxed at 0.02%, also capped at ₹300.
- Small merchants collecting up to ₹1 lakh per month via UPI QR codes remain exempt, covering about 96% of merchant transactions.
Important Facts
The NPCI, together with payment banks and merchant banks, drafted the circular on 15 September 2026 that introduced the MDR. The collected amount will be distributed as follows:
- 40% to the customer’s bank
- 30% to payment gateways
- 20% to the UPI app provider
- 10% to the sponsoring bank of the UPI app
Additionally, 5% of total MDR collections will fund a dedicated scheme to promote UPI adoption among small merchants.
Exam Relevance
Understanding the new MDR framework is important for GS III (Economy) as it touches on digital payment infrastructure, revenue models for banks, and consumer protection. The role of the NPCI illustrates public‑private collaboration in financial technology, a recurring theme in governance questions. The clarification that the charge does not go to the Consolidated Fund of India helps aspirants differentiate between taxes, fees, and service charges.
Way Forward
Stakeholders should monitor the impact of the MDR on merchant adoption of digital payments, especially among small businesses. The government may need to review the fee caps and exemption thresholds to ensure financial inclusion. For UPSC candidates, tracking subsequent parliamentary debates and any amendments will provide insight into policy‑making dynamics and fiscal prudence.