Rahul Gandhi criticised the decision to impose a tax on UPI on Wednesday. In a video posted on X, he alleged that the move would benefit the US and urged the government to withdraw it.
The government had ordered on Tuesday that a 0.4% MDR would be charged on select UPI merchant payments above ₹2,000 from October 15, 2026. The charge will be capped at ₹300 per transaction. The fee will be collected from the merchant, not the customer.
No fee will be charged on UPI payments up to ₹2,000 or person-to-person (P2P) transactions. According to the government, around 96% of merchant UPI transactions will also remain unaffected by the charge.
Zerodha founder says there is a big difference between merchants and brokers
Zerodha founder and CEO Nithin Kamath, India’s largest stock trading company, said UPI is now being used on a very large scale, after which MDR may be necessary. However, he said the existing MDR framework does not seem practical for cases such as investing and broking. According to him, there is a big difference between a regular merchant and a broker.
Nithin explained with an example: If a customer buys goods worth ₹20,000 and pays through UPI, the merchant earns revenue from the sale. In other words, the payment is directly linked to the business. But in the case of a broker, a customer can transfer ₹2 lakh to their trading account through UPI and may not buy even a single share that day. In such a case, the broker earns no trading revenue from the transaction, but may still have to bear the MDR cost associated with the UPI payment. This is the difference Kamath has questioned.
AAP says UPI fee will increase inflation
Aam Aadmi Party Rajya Sabha MP Sanjay Singh said on Wednesday that the government’s decision on UPI would burden consumers and affect small traders’ digital businesses.
Sanjay Singh said that if merchants are charged a fee on UPI payments above ₹2,000, they will not pay the amount from their own pockets. Instead, they will increase the prices of goods and pass the burden on to customers. This will increase inflation and may push people towards cash transactions instead of digital payments.
Government had also launched an incentive scheme for small shopkeepers
The government launched an incentive scheme in 2021-22 to promote UPI and keep it free. Under the scheme, an incentive of 0.15% was provided on UPI payments of up to ₹2,000 made by customers to small merchants. An incentive of ₹8,276 crore was provided under the scheme up to 2024-25. As of June 2026, there were around 55.5 crore UPI users in the country.
How does UPI work?
To use UPI services, you need to create a Virtual Payment Address (VPA). You then need to link it to your bank account. After this, you do not need to remember your bank account number, bank name or IFSC code. The person making the payment simply processes the payment request using your mobile number.
