Petrol pump dealers across several parts of India have warned that they may stop accepting UPI payments of more than Rs 2,000 from October 15, when a new Merchant Discount Rate (MDR) comes into effect on higher-value merchant transactions. For fuel purchases above Rs 2,000, the new framework sets a flat Rs 5 MDR rather than the standard 0.4% rate applicable to many other merchant transactions.
Dealers, including the All India Petroleum Dealers Association (AIPDA), are seeking a complete exemption, arguing that their margins are already narrow and that they cannot simply increase fuel prices to absorb the additional cost. The government, however, has clarified that MDR is a merchant-side payment-system charge, not a tax on customers, and banks have been advised to ensure that merchants do not pass it on to consumers.
RBI Deputy Governor Shirish Chandra Murmu has also said concerns that the change will push people back towards cash are likely to be an “initial apprehension”. The issue has now become a point of contention between fuel retailers seeking relief and authorities seeking to make the UPI payment ecosystem financially sustainable.
Why Dealers Are Concerned
The dispute centres on how the new MDR framework will affect petrol pumps, where payments above Rs 2,000 are common. Under the framework announced by the Ministry of Finance and NPCI, person-to-merchant UPI transactions above Rs 2,000 will generally attract an MDR of 0.4%, subject to a cap of Rs 300 for transactions of Rs 75,000 and above.
Fuel, along with other essential and thin-margin sectors such as railways, telecommunications and insurance, will instead face a flat Rs 5 MDR for transactions above Rs 2,000. Payments below that threshold will continue to carry zero MDR.
Petrol pump dealers argue that even a flat Rs 5 charge can add up because fuel retailing operates on prescribed commissions and margins. The Federation of All India Petroleum Traders spokesperson Monty Sehgal said dealers “may have to stop accepting UPI payments of Rs 2,000 and above” if an exemption is not granted. Dealers in Delhi-NCR, Punjab, Uttar Pradesh, Mumbai, Karnataka and Rajasthan have similarly raised concerns over the additional cost. The Hindustan Times reported that some dealers put their margins at around Rs 2.40-3.40 per litre.
The AIPDA has formally sought a complete exemption, arguing that petrol and diesel are essential commodities and that payments above Rs 2,000 are routine at fuel stations. The association has also pointed out that dealers do not have the freedom to simply increase the retail price of petrol or diesel to recover payment-related costs because prices and dealer margins operate within an established structure.
What The Government Says
The Centre has stressed that the new MDR should not be described as a UPI tax. According to the Ministry of Finance, MDR is a charge within the merchant payment ecosystem and is distributed among participating banks, payment service providers and UPI application providers.
Customers are not supposed to pay it. Banks have been advised to ensure that merchants do not transfer MDR costs to customers, while UPI application providers have been prohibited from imposing platform or hidden charges.
The government has also said the change affects only a small share of merchant transactions. Around 96% of UPI person-to-merchant transactions are expected to remain unaffected because they are either below Rs 2,000 or covered by the zero-MDR framework for small merchants.
Person-to-person UPI transfers will remain free regardless of the amount. The government says the new framework is intended to support the long-term sustainability of the UPI ecosystem and fund its continued expansion and infrastructure.
RBI Deputy Governor Shirish Chandra Murmu has separately sought to address concerns that the new charge could lead to greater reliance on cash. Speaking at a financial market conclave in Mumbai, Murmu said the apprehension that merchants or users would shift towards cash was unlikely to persist, describing it as an “initial apprehension”. He acknowledged that the change represents a significant shift in how the costs of the digital payments ecosystem are recovered, but said he did not expect it to materially increase cash usage.
For consumers, the immediate issue is therefore not a direct UPI fee but whether individual petrol pumps will continue accepting larger UPI payments. If dealers proceed with the proposed restriction, motorists making fuel purchases above Rs 2,000 could be asked to use cash or another payment method, even though the official framework does not impose an MDR directly on them.
The Confederation of All India Traders (CAIT) has described the proposed restrictions by petrol pump dealers as a serious concern for both consumers and retailers.
The Logical Indian’s Perspective
The disagreement highlights a larger question about how India can maintain the convenience of digital payments while ensuring that the businesses facilitating them can operate sustainably. Petrol dealers have a legitimate concern about additional costs in a tightly regulated, low-margin business, while regulators and payment providers have to consider the infrastructure, security and operational costs behind a system used by millions every day.
A constructive resolution would require meaningful dialogue between dealers, oil marketing companies, banks, NPCI and the government, with clear communication so that consumers are not caught between competing positions. As India continues to deepen its digital payment ecosystem, how should policymakers balance affordable digital payments for citizens with the operating realities faced by small and essential-sector businesses?
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