New 0.4% MDR applies to specified merchant payments above ₹2,000 from October 15; government says consumers cannot be charged, while Grover argues the cost could eventually reach them indirectly
New Delhi, September 16, 2026:
Among those questioning the move is entrepreneur and BharatPe co-founder Ashneer Grover, who has argued that even if the charge is formally imposed on merchants, businesses may eventually recover the cost through prices or other changes affecting consumers.
Under the new framework, effective October 15, 2026, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI payments above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 and above. Person-to-person UPI payments will remain free regardless of amount. Small merchants receiving up to ₹1 lakh a month through eligible UPI QR transactions will also remain under a zero-MDR arrangement.
The government has also said UPI providers cannot impose additional charges on users and has advised banks to ensure that merchants do not pass the MDR on to customers.
That is where Grover's question begins:
Who really pays?
Grover's argument: the cost can eventually reach consumers
Grover's argument is based on a basic feature of business economics: a cost imposed on a business does not necessarily remain entirely with the business.
In a television interview, Grover questioned the government's assurance that consumers would remain unaffected, arguing that “end of day consumer pays.” He has also argued that a levy associated with UPI should effectively be regarded as a form of tax collection.
His argument does not mean that customers will receive a separate UPI bill.
The question is about indirect costs.
For example, if a merchant receives a ₹10,000 UPI payment, a 0.4% MDR would amount to ₹40. The merchant would formally bear that charge.
The merchant could absorb the ₹40 as a business expense. Alternatively, depending on the business and its margins, the merchant could respond by changing prices, encouraging another payment method or adjusting other costs.
Whether merchants actually pass the cost on to consumers remains an open question, rather than an established outcome.
What does the government say?
The government's position is different.
The new framework is designed to create a revenue model for the UPI ecosystem while keeping ordinary users protected. The government says the MDR will be distributed among participants in the payment ecosystem, including banks and payment-app providers.
The framework also contains several exemptions and reduced charges.
For example:
- P2P UPI payments remain free, regardless of amount.
- Standard P2M payments up to ₹2,000 remain outside the MDR.
- Eligible small merchants receiving up to ₹1 lakh per month through UPI QR transactions remain exempt.
- Certain sectors including railways, telecom, insurance and fuel have a ₹5 flat MDR for specified transactions above ₹2,000.
- Certain capital-market transactions will attract a lower 0.02% MDR, capped at ₹300.
The government says only about 4% of merchant transactions are expected to be affected by the new MDR because most transactions fall below ₹2,000 or within the zero-MDR small-merchant framework.
Why charge UPI after years of free payments?
Grover has also questioned the economic rationale for introducing charges after UPI's growth was built around the convenience of a largely free payment system.
His broader argument is that digital payments may reduce some of the costs associated with cash-based transactions, including cash handling and physical payment infrastructure.
He has therefore questioned whether those wider economic benefits should be considered when assessing the cost of maintaining UPI. Reports of his comments also show him pointing to the cost of India's ATM and cash-logistics network while questioning the rationale for charging UPI.
The government and payment ecosystem have a different economic argument: UPI requires continued investment in infrastructure, cybersecurity, innovation and service capacity, and a sustainable commercial model could help finance that expansion.
So the disagreement is not simply about whether UPI costs money.
It is about who should bear those costs and how the economic benefits of digital payments should be accounted for.
Could ordinary consumers eventually feel the impact?
This is the most important distinction in the debate.
Consider a ₹20,000 purchase.
At 0.4%, the MDR would be:
₹20,000 × 0.4% = ₹80
Under the new rules, the customer is not supposed to pay that ₹80 as a separate UPI charge.
The merchant bears the MDR.
But what happens afterwards is an economic question.
One merchant may absorb the cost.
Another may accept a slightly lower margin.
Another could change prices.
Another could encourage customers to use cash or another payment method.
There is currently no evidence that all merchants will pass the cost to customers. Equally, the government's prohibition on directly passing the MDR to customers does not by itself establish how individual businesses will adjust their broader pricing decisions.
That is the gap between the government's direct-charge assurance and Grover's indirect-cost argument.
Is the MDR a tax?
This is another area where the distinction matters.
Grover has described the levy as effectively “tax collection.”
The government's framework, however, treats the MDR as a merchant-payment charge within the UPI ecosystem, with proceeds distributed among payment-system participants. The government has not described the MDR itself as a tax collected from consumers.
Therefore, calling the MDR a “tax” is Grover's characterization, not the government's description of the mechanism.
What changes for ordinary UPI users?
For most people, the immediate change is narrower than the headline “UPI charges” might suggest.
If someone sends money to a friend or family member through UPI, there is no new charge.
If a customer makes a merchant payment within the applicable free threshold, there is also no MDR.
The new charge primarily concerns specified P2M transactions above ₹2,000.
The practical question for consumers will therefore be less about receiving a UPI bill and more about whether merchants change prices, payment preferences or business practices after the MDR takes effect.
The real test begins October 15
UPI has become deeply integrated into everyday economic activity in India, from small purchases to large merchant payments.
The new MDR framework attempts to address the financial sustainability of the payment ecosystem while protecting consumers from a direct transaction fee.
Grover's criticism raises a different question: Can a cost imposed on merchants remain entirely with merchants in a competitive economy, or will some of it eventually be reflected elsewhere?
There is no established answer yet.
The government has explicitly said customers should not bear the MDR. Grover argues that business costs can ultimately reach consumers.
The evidence on how merchants actually respond will only emerge after the framework takes effect on October 15.