India’s decision to introduce a Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions above ₹2,000 has triggered reactions from petrol pump dealers, retailers, traders and payment-industry leaders, while a public interest litigation (PIL) has been filed in the Supreme Court challenging the framework.
From October 15, a 0.4% MDR will apply to specified merchant transactions above ₹2,000, with a ₹300 cap on transactions of ₹75,000 or more. Fuel, telecom, insurance and certain other essential-sector transactions above ₹2,000 will attract a flat ₹5 MDR. Petrol pump dealers have threatened to stop accepting UPI payments above ₹2,000 unless fuel retailers are exempted, citing narrow margins. Retailers and other businesses have also raised concerns about costs and a possible shift towards cash.
At the same time, former SBI chairman Rajnish Kumar, NITI Aayog Vice Chairman Ashok Kumar Lahiri and PhonePe CEO Sameer Nigam have defended the move, arguing that India’s digital payments infrastructure needs a sustainable revenue model.
Dealers Raise Concerns
Petrol pump dealers across India have opposed the ₹5 MDR applicable to fuel payments above ₹2,000. Dealer associations say the charge could further squeeze their already narrow margins and have warned that they may stop accepting UPI payments above the threshold and revert to cash.
The Federation of All India Petroleum Traders said dealers “may have to stop accepting UPI payments of ₹2,000 and above” if an exemption is not granted. Dealers have also argued that fuel retailers cannot simply increase petrol or diesel prices to recover the cost because retail prices and dealer margins are governed by the existing pricing structure.
The concerns extend beyond petrol pumps. The Retailers Association of India has warned that the additional cost could encourage merchants to favour cash, particularly during the festive shopping season. The Clothing Manufacturers Association of India has also described the timing as difficult for businesses dealing with weak demand and tight margins. In financial markets, Zerodha CEO Nithin Kamath has raised concerns about the separate 0.02% MDR applicable to capital-market payments, saying it could create challenges for brokerages if the cost has to be absorbed indefinitely.
Supporters Defend Change
Several voices have argued that the MDR should be viewed as a payment-processing cost rather than a tax. Former State Bank of India chairman Rajnish Kumar said maintaining UPI involves significant expenditure on technology, cybersecurity, compliance and fraud prevention.
He argued that the ecosystem cannot be subsidised indefinitely and that merchants are paying for the convenience of digital payments. Kumar also said the 0.4% figure is a maximum rate rather than necessarily the rate that every eligible merchant will pay.
NITI Aayog Vice Chairman Ashok Kumar Lahiri similarly defended the principle of introducing a charge, saying businesses need to become financially sustainable rather than depend indefinitely on government subsidies. He made clear that the comments represented his personal view.
PhonePe CEO Sameer Nigam also backed the change, saying the UPI ecosystem incurs substantial annual costs and cannot continue relying on government support. He said around 95-96% of P2M transactions are below ₹2,000, meaning most everyday UPI payments would remain outside the MDR framework.
The opposing argument has also come from within the payments industry. Former BharatPe co-founder Ashneer Grover questioned the need for the merchant charge and argued that the cost could ultimately affect consumers despite the government’s rule prohibiting merchants from passing MDR directly to customers. PhonePe’s Nigam subsequently disputed Grover’s criticism and defended the need for a sustainable commercial model for UPI.
PIL Challenges Framework
The dispute has also moved to the Supreme Court. A PIL filed by advocate Anjan Datta challenges the Centre’s September 14 notification and the MDR framework announced on September 15. The petition questions the legal basis and procedure behind introducing charges on UPI transactions above ₹2,000 and seeks judicial intervention against the new framework. The Supreme Court has not yet scheduled a hearing on the plea.
The government and NPCI have emphasised that UPI remains free for person-to-person payments and for merchant transactions up to ₹2,000. Small merchants receiving up to ₹1 lakh a month through QR-code UPI payments are also covered by the zero-MDR framework.
The government says customers cannot be charged MDR directly and that the revenue will be distributed among participants in the payment ecosystem to support infrastructure, cybersecurity, innovation and continued expansion. According to the government’s explanation, around 96% of P2M UPI transactions will remain unaffected.
Few allegations are in the media that the MDR has been introduced because of external pressure. They are giving reference to US Trade Representative (USTR) report of 2026. The USTR report has raised the following two issues:
— DFS (@DFS_India) September 17, 2026
(i) Inability of US electronic payment services… pic.twitter.com/iZ2qRPimfk
The Logical Indian’s Perspective
The UPI debate highlights a genuine tension between two objectives: keeping digital payments accessible and ensuring the infrastructure behind them can remain financially sustainable. For businesses operating on narrow margins, even a small transaction cost can matter, while payment companies and policymakers argue that technology, cybersecurity and fraud prevention require sustained investment.
The disagreement also underlines why clear communication will matter — particularly around who pays MDR, which transactions are exempt and how the revenue is distributed. As India enters the next phase of its digital-payment journey, how should policymakers balance the concerns of businesses with the long-term sustainability of UPI?
Also Read: New UPI Changes Explained: What The New Rules Mean For Merchants And Everyday Payments
