India’s UPI ecosystem is entering a new phase after the National Payments Corporation of India (NPCI) notified a Merchant Discount Rate (MDR) on certain high-value merchant transactions. From October 15, 2026, a 0.4% MDR will apply to specified person-to-merchant UPI payments above Rs 2,000, with the charge capped at Rs 300 per transaction. Person-to-person payments will remain free. The announcement has triggered debate over whether introducing a charge could change the economics of India’s digital payments ecosystem. Among those questioning the move is Ashneer Grover, former BharatPe co-founder, who described the levy as effectively a form of tax collection and questioned why UPI should be charged when banks and the wider financial system already generate substantial surpluses and profits.
What Ashneer Grover Is Questioning
Grover’s argument centres on the economics behind UPI.
In a post on X, he pointed to the RBI’s Rs 2.87 lakh crore surplus transfer to the government, Rs 4.11 lakh crore in total profits reported by listed banks and an NPCI pre-tax surplus of Rs 1,888 crore.
He then questioned what part of the UPI ecosystem is actually losing money and what subsidy the government is supposedly trying to recover.
Grover also compared the economics of digital payments with India’s cash infrastructure. He cited Rs 30,500 crore as the cost of running ATMs and cash logistics and argued that encouraging UPI rather than adding costs to it could make greater economic sense.
His conclusion was blunt: “Any levy on UPI is just tax collection.”
That is Grover’s characterisation of the policy, rather than how the government itself describes the charge.
The Government Says It Is Not a Tax
The distinction is important.
The Ministry of Finance clarified that the new MDR is not a tax and does not go to the government or NPCI. Instead, banks and payment application providers receive the revenue as part of the payments ecosystem.
The government’s stated objective is to support the long-term sustainability of UPI while continuing to protect individuals and small merchants from additional costs.
Banks have also been advised to ensure that merchants do not pass the MDR on to customers. UPI application providers are prohibited from imposing platform fees or hidden charges under the framework.
So, technically, the new charge is an MDR paid by eligible merchants, not a transaction tax paid directly by UPI users.
So Who Actually Pays?
This is where the new framework becomes important for everyday users.
A person sending money to another person will continue to pay nothing, regardless of the amount.
Payments to merchants up to Rs 2,000 will also remain free. Small merchants covered under the zero-MDR framework will continue to be exempt.
For specified merchant transactions above Rs 2,000, however, MDR will apply.
The standard rate is 0.4%, with a maximum charge of Rs 300 on transactions of Rs 75,000 or more. Certain categories, including railway, telecom, insurance and fuel payments, will instead attract a flat Rs 5 MDR above the threshold.
Why the Government Says Most Users Will Not Notice
The government has stressed that the change affects only a small portion of UPI merchant transactions.
According to the Ministry of Finance, around 96% of P2M transactions will remain unaffected. The framework applies to roughly 4% of merchant transactions.
NPCI has separately said that transactions up to Rs 2,000 account for more than 95% of P2M transaction volume.
That means the policy is designed to leave everyday low-value payments largely untouched while introducing a cost for specified larger merchant transactions.
Why UPI Is Being Charged Now
UPI operated for years without a conventional MDR structure for most merchant payments.
The new framework changes that model as UPI has become a massive part of India’s payments infrastructure.
According to the government, the objective is to support investment in infrastructure, innovation, cybersecurity and the continued expansion of the ecosystem.
The RBI has similarly described the introduction of MDR on large-value transactions as a measure intended to support UPI’s long-term sustainability.
This creates the central economic question behind the debate: who should ultimately bear the cost of maintaining a payments network that has become critical national infrastructure?
The government has chosen a merchant-funded model for a limited category of transactions.
Grover’s argument is that adding a cost to UPI could undermine the incentives behind India’s shift from cash to digital payments.
Could Merchants Pass the Cost to Consumers?
The policy says they should not.
The Finance Ministry has advised banks to ensure that merchants do not pass the MDR on to customers.
However, the economic impact can still depend on how businesses respond.
A merchant formally paying the MDR could absorb the cost, adjust margins or potentially factor payment costs into broader pricing decisions.
That does not mean consumers will automatically be charged a UPI fee. It means the broader effect on prices will depend partly on business behaviour.
This is also why the distinction between a direct consumer charge and an indirect business cost matters.
What This Means for UPI Users
For most people, the immediate change is limited.
Sending money to friends or family remains free. Small UPI payments remain free. The government says approximately 96% of merchant transactions will remain unaffected.
The change is more relevant to larger merchant payments and businesses that receive significant UPI volumes.
For the creator economy, online businesses, retailers and digital-first companies, the new MDR could become another cost to consider when evaluating payment methods and transaction economics.
The Bigger UPI Debate
Grover’s criticism raises a larger question than whether a 0.4% MDR is expensive.
It is about what happens when a technology that was initially promoted as a low-cost digital alternative becomes essential infrastructure at enormous scale.
UPI has helped move payments away from cash and towards instant digital transactions. Maintaining that infrastructure also involves banks, payment providers, cybersecurity systems and technology investments.
The government’s position is that a limited MDR can help sustain that ecosystem without affecting consumers or most small merchants.
Grover’s position is that charging merchants could weaken one of the strongest incentives for digital adoption and amounts, in his view, to another form of taxation.
Both arguments ultimately revolve around the same issue: how should India pay for the next phase of UPI without undermining the convenience that made it so widely adopted?
For now, the new MDR framework is scheduled to take effect on October 15, 2026.