New Delhi: The government’s decision to introduce a merchant discount rate (MDR) on select high-value UPI transactions from October 15 has triggered a political debate, with the Congress criticising the move while authorities maintained that routine digital payments will remain free.

Under the new framework, a 0.4 per cent MDR will apply to specified person-to-merchant UPI transactions above Rs 2,000, with a maximum cap of Rs 300 for transactions of Rs 75,000 and above. Person-to-person transfers and merchant payments up to Rs 2,000 will continue without charges.

The government clarified that MDR is not a tax and will not be collected by the government or the National Payments Corporation of India (NPCI). The fee will operate within the payments ecosystem involving banks and service providers.

For essential sectors such as railways, telecom, fuel, insurance and agricultural inputs, a flat MDR of Rs 5 will apply on transactions above Rs 2,000. Certain capital market-related transactions will attract a lower rate.

Congress leaders have criticised the move, calling it a burden on users and merchants, while the government and the Reserve Bank of India have said the measure is aimed at ensuring the long-term sustainability of the UPI ecosystem.

The RBI has described the introduction of MDR on large-value transactions as a step towards strengthening infrastructure and supporting future expansion.

Industry observers said the impact will depend on whether merchants absorb the cost or pass it on to consumers.