RAI Raises Concerns Over 0.4% MDR on UPI Payments Above Rs 2,000

Retailers Association of India says merchant-side charge could affect digital payment adoption among small retailers ahead of the festive season

The Retailers Association of India (RAI) has raised concerns over the government’s decision to introduce a 0.4% Merchant Discount Rate (MDR) on UPI person-to-merchant transactions above Rs 2,000. The charge will be capped at Rs 300 for transactions of Rs 75,000 and above, with the framework keeping consumers outside its ambit.

RAI Raises Concern Over Impact on Small Retailers

RAI said the merchant-side charge could affect smaller retailers, particularly those operating on thin margins, by creating an incentive to shift some transactions from UPI to cash.

The association said the timing is significant as the festive season gets underway, when a large share of retail transactions crosses the Rs 2,000 threshold.

“Small merchants will now think twice about whether to accept cash or UPI,” said Kumar Rajagopalan, CEO, Retailers Association of India. “During the festive season, a large share of transactions crosses the Rs 2,000 mark, and the moment a fee attaches itself to digital payment, cash becomes the path of least resistance.”

Under the revised framework, the MDR applies to eligible person-to-merchant UPI transactions, while consumers are not directly charged. Person-to-merchant transactions up to Rs 2,000 and person-to-person transactions remain outside the MDR framework.

Association Links UPI Adoption With Formalisation

RAI said its concerns extend beyond the direct cost to retailers. According to the association, transactions moving from UPI to cash could reduce the digital trail used for GST reporting and work against formalisation efforts.

“This cuts against the government's own formalisation agenda,” Kumar Rajagopalan said. “UPI acceptance should be incentivised, not taxed.”

RAI also called for differentiation between UPI transactions funded directly from savings or current accounts and those linked to credit lines.

“ We don't see the case for charging a bank-to-bank UPI payment the way you'd charge for credit,” Rajagopalan said. “Where UPI is linked to a credit line, a fee is easier to defend, because the cost structure genuinely resembles a credit product. We urge that the government should bear the cost of normal UPI transactions since it repays the government with GST and traceable transactions instead of cash transactions.”

RAI Calls for Government Support for UPI Infrastructure

The association also raised concerns over how the cost of maintaining the UPI infrastructure should be funded.

“NPCI keeps UPI running for the entire country — RBI or the government should be underwriting that cost, not merchants,” Rajagopalan said. “The state gets a formal, traceable transaction it can tax out of every UPI payment. It should be paying for the enablement, not passing the bill down to the smallest retailer in the chain.”

The government has said the MDR will apply within the merchant payment ecosystem and will not be charged directly to consumers. The revised framework is scheduled to take effect from October 15, 2026.

RAI Seeks Graded UPI Charge Structure

RAI said it will take up the matter with the National Payments Corporation of India (NPCI) and the Ministry of Finance.

The association is seeking a graded structure that distinguishes between debit-linked and credit-linked UPI transactions and pairs any merchant charge with incentives aimed at keeping small retailers within the formal digital payment system.