Government Clarifies MDR Policy For High-Value UPI Transactions

The government has provided clarity on merchant discount rate (MDR) levies for UPI transactions valued above ₹2,000, addressing long-standing concerns among retailers and small business owners about transaction costs.

Under the new framework, merchants processing high-value digital payments through UPI will face standardized MDR charges. However, specific categories of traders have been granted exemptions from these charges, receiving zero-MDR status as an incentive to boost digital payment adoption.

The distinction between different merchant categories reflects the government's broader strategy to encourage cashless transactions while providing relief to vulnerable trader segments. The clarification eliminates ambiguity that had previously surrounded the applicability of MDR to payments above the ₹2,000 threshold.

This policy decision balances the interests of payment service providers, who rely on transaction fees, with merchants seeking to reduce operational costs. Officials indicated that the zero-MDR relief targets specific trader classifications to promote financial inclusion and digital literacy across India's retail sector.

The government's move comes as UPI has emerged as the dominant digital payment method in India, processing billions of transactions monthly across urban and rural markets.