It's 'Modi tax' says Congress as Centre introduces 0.4% tax on UPI payments

Ending nearly six years of a fully free Unified Payments Interface (UPI) network for merchants, the government on Tuesday, 15 September, introduced a 0.4 per cent transaction fee on payments above Rs 2,000, capped at Rs 300 for payments of Rs 75,000 and above, from October 15, while explicitly ring-fencing everyday person-to-person transfers from any charge.

The new charges will take effect from 15 October. The Finance Ministry said the MDR would be imposed within the merchant payment ecosystem and would not be charged to customers.

Soon after the government notification, Leader of Opposition in the Lok Sabha Rahul Gandhi alleged that the Modi government has quietly paved the way for imposing fees on UPI, while Congress chief Mallikarjun Kharge said the Modi government's "loot" has now reached UPI.

“Customers will not be required to pay any charge when making such payments through UPI,” the ministry said, adding that MDR “is not a charge on customers making UPI payments”.

Person-to-person (P2P) transfers will remain free regardless of the amount, while P2M transactions of up to Rs 2,000 will also continue without MDR. The government said more than 95% of P2M transaction volume falls below the Rs 2,000 threshold.

Lashing out at the move, Congress's media and publicity department head Pawan Khera said the 0.4 per cent MDR on UPI transactions above Rs 2,000 should be called the "Modi Tax".

"He popularised UPI, wanted all the credit for building a 'cashless economy' -- and now he is taxing people for using it," Khera said on X.

In a post in Hindi on X, Rahul Gandhi said, "Now, MDR can be levied on merchant UPI transactions above Rs 2,000. Even if these transactions account for just 5% of the volume, they make up nearly 65% of UPI's total transaction value."

"Just like with the US Trade Deal, Compromised PM Modi is once again surrendering to American pressure," Gandhi alleged, claiming that US payment companies have long opposed India's zero-MDR policy.

According to the finance ministry notification, the 0.4% MDR will be capped at Rs 300 for payments of Rs 75,000 and above. The fee will be shared among banks, payment service providers and other participants in the payment ecosystem.

Essential and thin-margin sectors such as railways, telecom, insurance, fuel and agricultural inputs will instead attract a flat Rs 5 MDR on transactions above Rs 2,000. The same flat-fee treatment will apply to government utility bill payments for electricity, water and piped gas, as well as school and university fee payments above Rs 2,000.

Payments involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, capped at Rs 300.

The government has also exempted small merchants receiving up to Rs 1 lakh a month through UPI QR codes under the Person-to-Person-Merchant framework. Such merchants will continue to pay zero MDR on all transactions.

UPI AutoPay and other automated recurring payments will also carry no MDR.The government said UPI app providers would be barred from imposing platform fees or hidden charges and banks had been advised to ensure merchants did not pass the MDR on to customers.

There will also be no monthly quotas, volume restrictions or tiered caps on free UPI transactions for individuals.

The move follows years of pressure from banks, fintech companies and payment service providers to introduce a revenue mechanism for UPI. Industry bodies have argued that maintaining the payment network, including servers, fraud prevention systems and technical support, involves substantial costs.

RBI Governor Sanjay Malhotra had earlier said “someone has to pay the cost”, while noting that the decision on MDR rested with the government.

UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026, according to government data, underscoring the system's role in India's retail payments ecosystem.

The government said only about 4% of merchant transactions would actually be affected by the new MDR because most transactions either fall below the Rs 2,000 threshold or qualify for exemptions.