Dipke said the levy should be reversed immediately, contending that citizens and businesses had responded to the policy emphasis on digital payments that followed demonetisation and should not now face additional costs linked to the same payment system. “You spoke of a cashless economy when demonetization was introduced, and now that people have actually adopted a cashless economy, you are imposing taxes on it as well,” he said.
The criticism follows the introduction of a new UPI framework under which a Merchant Discount Rate will apply from October 15 to specified person-to-merchant transactions above ₹2,000. The standard MDR has been set at 0.4 per cent for eligible transactions, while payments of ₹75,000 or more will face a maximum charge of ₹300.
The government has stressed that the MDR is not a tax and will not be charged to customers making UPI payments. It will instead be borne within the merchant payment ecosystem and distributed among participants including banks and payment application providers to support the operation, security and expansion of UPI infrastructure.
Person-to-person UPI transfers will remain free regardless of value. Merchant payments up to ₹2,000 will also continue without MDR, while small merchants receiving up to ₹1 lakh a month through eligible QR-based UPI transactions will remain under the zero-MDR framework. The Finance Ministry has said about 96 per cent of person-to-merchant UPI transactions will therefore remain unaffected.
Certain categories will be treated differently. Payments above ₹2,000 for services such as railways, telecom, insurance and fuel will attract a flat MDR of ₹5, while capital-market transactions will face a lower percentage charge. The framework also bars payment providers from imposing separate platform or hidden charges on individual UPI users.
Dipke’s comments place him among political and business voices questioning whether even a limited merchant levy could weaken the low-cost model that helped UPI expand rapidly. His argument, however, characterises the charge as a tax, while the government’s formal position is that MDR is a commercial payment-processing fee rather than revenue collected by the state.
The policy marks a change from the statutory zero-MDR regime that applied to prescribed UPI payments after 2019. During that period, the government supported payment-system participants through incentive schemes intended to compensate for the absence of merchant charges and sustain the digital payments network.
Finance Ministry data show that about ₹8,730 crore in incentive support was provided to the UPI ecosystem between the 2021-22 and 2024-25 financial years. By August 2025, the government had told Parliament that it had no proposal at that time to impose transaction charges on UPI.
The policy position shifted this year after amendments to the Payment and Settlement Systems Act created an enabling framework for limited merchant charges. The government said in August that any MDR would apply only to a restricted set of merchant transactions above a threshold and would remain lower than comparable debit or credit card charges.
Industry groups have nevertheless warned that businesses operating on narrow margins could feel the impact. Distributors and retailers in the fast-moving consumer goods sector have sought continued zero-MDR treatment, arguing that an additional percentage charge on high-volume payments could increase operating costs even where individual transaction fees appear modest.
Payment companies and banks have long argued that operating UPI requires sustained spending on technology, fraud prevention, dispute resolution and network capacity. The new model attempts to recover part of those costs from larger commercial transactions rather than individual users. Critics counter that merchants may ultimately absorb the burden through thinner margins or adjust prices indirectly, despite the prohibition on explicitly adding a UPI surcharge at checkout for customers.
