No rollback on new UPI merchant fees despite growing backlash from retailers and opposition

What is changing?

From 15 October, merchant transactions over ₹2,000 conducted via the Unified Payments Interface (UPI) will attract a 0.4 per cent Merchant Discount Rate (MDR). This ends a six-year era of entirely free UPI transactions.

Government sources have made it clear that there will be no U-turn on the policy. "There is no question of reversing it," an official told reporters, arguing that the fee is necessary to make India's digital payments network self-sustainable.

Why retailers are pushing back

While the government insists the fees will be borne by merchants, not consumers, businesses are already protesting.

The All India Petroleum Dealers Association has written to Finance Minister Nirmala Sitharaman to demand a full exemption. Under the new rules, transactions for essential services like fuel, telecom, and railway tickets over ₹2,000 will be charged a flat rate of ₹5 instead of the percentage fee.

But petrol pump owners say this still threatens their survival. Because their commissions are fixed on a per-litre basis by oil companies rather than as a percentage of the sale value, they cannot pass the costs on.

The association's president, Ajay Bansal, warned that even a ₹5 charge would quickly mount up across thousands of daily transactions, creating a heavy financial burden. He warned that some petrol pumps might start capping or discouraging UPI payments over ₹2,000 to protect their margins, which could undermine digital payment adoption.

The political row

The decision has also triggered a fierce political debate. Opposition MPs have branded the levy a "Modi Tax" and accused the government of capitulating to foreign pressure. The Congress party claimed the policy was introduced to satisfy demands from the United States.

The Finance Ministry quickly dismissed these allegations on social media, stating that India’s UPI decisions are made independently to build an inclusive digital payments ecosystem.

Within parliament, members of the Standing Committee on Finance have raised concerns. N.K. Premchandran, an opposition MP on the panel, called the decision "completely anti-people" and warned it would affect the entire population. Bhartruhari Mahtab, the committee’s chairman, said the panel may take up the issue at its next meeting.

Who is protected?

The government has repeatedly stressed that ordinary citizens will not pay a paisa more for their daily purchases.

According to the Finance Ministry:

• Personal money transfers between friends and family remain entirely free.
• Over 95 per cent of all merchant transactions fall below the ₹2,000 threshold and will not attract the fee.
• Small vendors earning up to ₹1 lakh a month through UPI QR codes are exempt.

The shift follows years of warnings that the free-payment model was unsustainable. The parliamentary finance panel previously pointed out that the government spent about ₹2,000 crore annually to subsidise the network, arguing that a permanent subsidy was putting too much strain on public finances.