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K Annamalai has asked the Union government to exempt small retailers from any UPI merchant discount rate (MDR) and treat digital-payment infrastructure as a public investment. He made the appeal at an All India Mobile Retailers Association convention at Town Hall in Ajjarkad, Udupi, on 24 October 2026. The Finance Ministry says its proposed framework keeps person-to-person payments free, preserves zero MDR for merchant payments up to ₹2,000 and protects eligible small merchants, while applying a limited fee to specified higher-value transactions. The exact nationwide start date remains unsettled: a news report says implementation was deferred until after Diwali, while a provider help page cites 15 October for certain payments.
What did Annamalai ask the Centre to do?
Annamalai urged the Union Finance and Commerce ministries to work together so that small traders do not bear UPI acceptance costs. He also asked local MPs to raise retailers’ concerns in Parliament and argued that the government should subsidise payment infrastructure instead of financing it through charges on small merchants.
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The Daily Pioneer quoted him saying, “UPI is like a hen that lays a golden egg every day. If you kill it expecting to get a hundred eggs at once, you will end up with nothing.” He also questioned why spending from the public exchequer to support UPI could not be treated as an investment in economic growth.
According to the same report, Annamalai cited an estimated ₹15,000 crore linked to the proposed charges and compared it with an annual Union budget of about ₹50 lakh crore. Those figures are his attributed estimates, not independently verified calculations in the available reports.
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Why was the appeal made in Udupi?
The event was an AIMRA state-level retailers’ convention in Udupi, a district where Annamalai previously served as a police officer. India Today reports that he was Assistant Superintendent of Police in Karkala and later Udupi superintendent of police from January 2015 until his transfer in July 2016. He resigned from the Indian Police Service in 2019, joined the BJP in 2020 and left the Tamil Nadu BJP presidency in April 2025.
Annamalai’s argument focused on the role of neighbourhood retailers in employment and local commerce. He said UPI’s no-charge model helped extend digital payments to rural users and people less comfortable with English, and warned that new merchant costs could weaken that adoption.
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Will UPI charges affect small shops?
The Finance Ministry’s 15 September 2026 explainer says eligible small merchants in the P2PM category will continue to pay zero MDR. It defines that category as merchants receiving up to ₹1 lakh per month through UPI QR codes. The Ministry also says merchant payments up to ₹2,000 remain free and estimates that about 96% of all person-to-merchant (P2M) transactions will be unaffected.
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- Person-to-person UPI transfers remain free regardless of amount.
- Merchant payments up to ₹2,000 remain free.
- Eligible P2PM merchants receiving up to ₹1 lakh a month through QR codes retain zero MDR under the Ministry’s stated framework.
- The Ministry says customers are not charged for these UPI payments.
The 96% figure is the Ministry’s own estimate, so it should not be read as an independently audited industry measurement.
Who has to pay MDR on UPI?
Under the Ministry’s explanation, MDR is a fee shared among participants in the payment ecosystem, including banks and payment-application providers. It is not a tax collected by the government or NPCI.
For specified person-to-merchant transactions above ₹2,000, the stated MDR is 0.4%, capped at ₹300 for transactions of ₹75,000 or more. Certain essential or thin-margin sectors instead carry a flat ₹5 MDR per transaction above ₹2,000. The framework also assigns an amount equal to 5% of total MDR collections to a fund supporting small-merchant UPI adoption.
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| Payment or merchant category | Position in the Finance Ministry’s 15 September 2026 explainer |
|---|---|
| Person-to-person transfer | Free, regardless of amount |
| Merchant payment up to ₹2,000 | Free |
| Eligible P2PM small merchant, up to ₹1 lakh monthly QR receipts | Zero MDR |
| Specified P2M payment above ₹2,000 | 0.4%, capped at ₹300 for ₹75,000 and above |
| Specified essential or thin-margin sector above ₹2,000 | Flat ₹5 per transaction |
Are UPI payments above ₹2,000 still free?
Not in every merchant-payment case. The Ministry’s framework applies MDR only to specified P2M transactions above ₹2,000, while P2P transfers remain free at any value. A small merchant that meets the stated P2PM threshold also remains exempt, so the payment amount alone does not determine whether MDR applies.
When will the revised UPI framework start?
The available accounts do not establish one universal implementation date. The Daily Pioneer reports that NPCI deferred the revised framework until after Diwali. A Google Pay for Business help page says a processing fee applies from 15 October 2026 to certain merchant payments above ₹2,000, but that is provider-specific guidance rather than proof that every UPI provider began charging on that date.
The Finance Ministry’s explainer sets out the exemptions and rates but does not resolve the timing conflict. An NPCI circular-index check cited for the issue did not surface an implementation notice identified as OC-237. Merchants should therefore check the acquiring bank or payment provider handling their QR acceptance before assuming a particular start date.
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Why does the government say a fee is needed?
A Finance Ministry release dated 8 August 2026 described any future MDR as limited to a narrow group of merchant transactions above a threshold and charged at a nominal rate. The Ministry linked the policy to the cost and sustainability of expanding the payment ecosystem. It cited 2,366 crore UPI transactions worth ₹29.9 lakh crore in July 2026.
That rationale differs from Annamalai’s warning. He argues that keeping acceptance free supports adoption and protects small retailers; the Ministry says its safeguards leave most transactions untouched while allowing ecosystem participants to share costs and fund further expansion.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How do retailers accept UPI?
NPCI’s merchant guidance says businesses generally work with an acquiring bank. Acceptance can be enabled through a QR code, an intent flow, an application-based integration or a collect request. The onboarding channel and any applicable fee depend on the merchant’s bank, provider and transaction category, so a retailer should obtain the written MDR schedule for its account rather than rely on a general UPI assumption.
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Frequently Asked Questions
Are customers charged when they pay a shop by UPI?
The Finance Ministry says customers are not charged under the stated framework. Any MDR is described as an ecosystem fee distributed among providers, not a surcharge collected from the person making the payment.
What does P2PM mean in the UPI policy?
P2PM refers to small merchants receiving up to ₹1 lakh per month through UPI QR codes, as defined in the Ministry’s 15 September 2026 explainer. Those merchants are listed as retaining zero MDR.
Does the ₹300 cap apply to every UPI transaction?
No. The cap is stated for specified person-to-merchant transactions above ₹2,000 when the transaction value is ₹75,000 or more. It does not describe a universal cap for all UPI payments.
What should a retailer verify before accepting a fee claim?
Check the acquiring bank or payment provider’s current schedule, the merchant’s monthly QR-receipt category and whether the payment is P2P or P2M. Provider-specific notices may not establish the start date or terms for every other UPI service.
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