‘No rethink’ on 0.4% fee for UPI payments above Rs 2,000: Report

The government is not considering any rollback of the proposed 0.4 per cent Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions above Rs 2,000, government sources told news agency PTI on Wednesday.

A senior official, responding to questions on whether the MDR charge, scheduled to take effect from October 15, could be withdrawn, said the decision had already been taken and there was “no question of reversing it”, PTI reported.

The new framework, announced on Tuesday, ends nearly six years of completely free UPI payments. Under it, a 0.4 per cent MDR will apply to merchant payments above Rs 2,000. Person-to-person transfers and smaller payments will remain outside the charge.

According to government sources, the move has been introduced in the broader interest of the UPI ecosystem, particularly to strengthen its safety and security. They said the decision to levy MDR, a practice followed in several other countries, was taken when the UPI system was introduced in 2020.

The new framework, they added, is aimed at making UPI financially self-sustainable, according to the report. Earlier in the day, the government rubbished claims of 'foreign influence' in its decision to impose the fee. In an X post the Finance Ministry said: "Some claims suggest the change is due to foreign influence.

This is false. India’s UPI policy decisions are made independently, with the clear goal of building a self-sustaining, inclusive, and affordable digital payments ecosystem." The statement comes as the move faced opposition from traders, shopkeepers and political parties, with critics referring to it as the “Modi Tax”.

Some Opposition parties, including the Congress, have also alleged that Prime Minister Narendra Modi gave in to pressure from the US. The Congress alleged that the government surrendered to a 'demand' by the United States and in a particularly stinging attack, Rahul Gandhi declared PM Modi had 'decided to lie down straight and prostrate himself in front of US President Donald Trump'.

The Finance Ministry said: "UPI continues to be free for customers. Sending money to friends, paying at shops, or scanning a QR code — all remain without charges." It also issued a detailed note on the new charges, including assuring lakhs of UPI users across the country that 'everyday payments are safe', pointing out that over 95 per cent of merchant transactions are below the Rs 2,000 threshold that will invite the 0.4 per cent fee.

“Customers will not be required to pay any charge when making such payments through UPI.” It added, “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.” The ministry also said individuals would retain “unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions”.

Vendors making up to Rs 1 lakh a month through UPI QR codes will "continue to enjoy zero charges" and that small merchants are "protected", the government added. The government underlined that only larger merchant transactions—that is, those over Rs 2,000—would be subject to the tax, which will be covered by the merchants.

In yet another crucial clarification, the government stated that payments for necessities like fuel, telecom, and train tickets will be subject to a fixed cost of Rs 5 for each transaction exceeding Rs 2,000. In a response to the opposition, Union Finance Minister Nirmala Sitharaman Wednesday stated that the discussion of tax reform must transcend "sectoral interests" and concentrate on the more general needs of India's economy, such as developing a system that is equitable, predictable, and encouraging of investment and innovation.

Speaking at the Eighth International Tax Conference on ‘New Age Taxation’ in Bengaluru, the Finance Ministry called for independent tax policy research to become part of public discourse and urged tax professionals to rise above sectoral interests and put the nation first, while highlighting steps to rationalise Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions and reduce unnecessary criminal consequences.

She said India had renegotiated tax treaties with Mauritius, Singapore and Cyprus to restore its right to tax capital gains at source, and noted that the country faced its own unique challenges on the path to growth and development.

The government on Tuesday had defended the decision, saying incentives would be provided to encourage further expansion of UPI in rural and semi-urban regions while preserving its competitiveness. It also maintained that the vast majority of payments would continue to remain free.

The Parliamentary Standing Committee on Finance had earlier raised concerns about the sustainability of the zero-MDR model. In its 32nd report, the panel said the regime “puts pressure on government finances” and warned that “establishing a viable revenue mechanism is critical to ensuring the UPI ecosystem achieves financial sustainability without perpetually straining the government exchequer”.

The committee also noted that the government was spending around Rs 2,000 crore annually to fund the incentive scheme associated with the zero-MDR policy. The change marks a shift after years of zero-cost UPI transactions, with a petition challenging the order is reportedly filed in the Supreme Court.