Trade Body Calls for Rollback of New UPI MDR Charges on High-Value Payments

There will soon be a UPI tax on high-value commercial payments; the Chamber of Trade and Industry (CTI) has asked the federal government to rethink this decision. In a letter to Finance Minister Nirmala Sitharaman, CTI Chairman Brijesh Goyal has requested the cancellation of the Merchant Discount Rate (MDR) on UPI payments over INR 2,000.

The MDR is set to be implemented on October 15, 2026. An MDR of 0.4%, up to a cap of INR 300 per transaction, would be applied to qualifying person-to-merchant UPI transactions over INR 2,000 under the new framework. The cost of sending money to another person will not change. Additional small businesses that receive up to INR 1 lakh monthly through UPI QR will not be subject to the MDR either.

Merchants will be Forced to Remove UPI: CTI

For many merchants and shoppers, the additional fee might make it more expensive to take digital payments, according to CTI's arguments. According to Goyal, the group is worried that, once the MDR is in place, merchants may think twice about using UPI for bigger transactions. The impact could be substantial, as high-value transactions make up a disproportionately big portion of merchant payment value compared to their volume share, according to CTI.

The group predicts a 50% drop in UPI payments over INR 2,000 following the implementation of the MDR. The possibility that some shoppers and businesses may switch back to using cash for bigger transactions is another worry. According to Goyal, 6 crore merchants, entrepreneurs, and shopkeepers in the nation are quite dissatisfied with the government's decision. Moreover, they will be hit much harder financially as a result.

CTI Seeks Govt to Keep UPI Free

Since traders have already moved substantially toward digital payments, CTI has requested that the Finance Ministry reevaluate the MDR decision. Cash may be more appealing to some firms due to an added fee on larger UPI transactions, according to the organisation. But most regular UPI transactions will still be free under the new government arrangement. The normal 0.4% MDR framework does not apply to transactions below INR 2,000, payments between individuals, or qualified small merchants. According to CTI, just about 4% of the transactions involved amounts greater than INR 2,000.

Nevertheless, the value of these large transactions amounts to approximately INR 131 lakh crore. To rephrase, the vast majority of merchant payment value is generated by a handful of very large payments. After October 15, when the new system goes live and merchants and customers' reactions become apparent, the true test will begin. In the last ten years, UPI has expanded significantly. According to official statistics, the number of UPI transactions would more than double from 1.78 crore in FY2016-17 to over 24,162 crore in FY2025-26.