Srinagar, Sep 17: The Traders Association Central Lal Chowk has raised objections to the new Merchant Discount Rate (MDR) framework for UPI payments, warning that the proposed charges on eligible merchant transactions above ₹2,000 could increase operating costs for traders and encourage some businesses to return to cash payments.
The association held an emergency executive meeting to discuss the new UPI framework, which is scheduled to take effect from October 15, 2026. Under the framework announced by the National Payments Corporation of India, a 0.4 per cent MDR will apply to specified person-to-merchant UPI transactions above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 and above.
President of the Traders Association Central Lal Chowk, Feroz Ahmad Baba, said the additional cost could disproportionately affect small traders, micro-enterprises and local shopkeepers operating on narrow margins.
The association said traders and traditional businesses in Lal Chowk had increasingly shifted towards QR-code-based payments in recent years, making digital transactions an important part of everyday commerce. It argued that imposing a cost on eligible higher-value transactions could weaken that transition, particularly for businesses where margins are already limited.
The association warned that if banks and payment-service providers do not reconsider the framework, some merchants could begin discouraging UPI payments for larger purchases and prefer cash transactions instead.
The concern is not limited to Srinagar. Retail trade bodies in other parts of the country have also raised concerns that the new MDR could increase costs for businesses operating on thin margins and potentially encourage a shift towards cash.
However, the new framework does not impose a charge on every UPI transaction above ₹2,000. The Finance Ministry has said UPI will remain completely free for person-to-person transfers, while payments to merchants up to ₹2,000 and transactions covered under the zero-MDR framework for small merchants will remain free. The government says approximately 96 per cent of P2M transactions will remain unaffected.
The MDR is also not a fee that consumers are supposed to pay directly. The Finance Ministry has clarified that it is neither a tax nor a government charge and will be distributed among participants in the payment ecosystem, including banks and payment-application providers.
For traders in Lal Chowk, however, the issue is the potential effect on the cost of receiving larger retail payments. The association said the additional charge could become significant when accumulated across a large number of transactions, particularly for wholesalers and retailers handling higher-value purchases.
The association has therefore urged the authorities and payment ecosystem stakeholders to reconsider the proposed structure and protect small and medium businesses from what it described as an additional financial burden.
The dispute comes as UPI has become deeply embedded in India’s retail economy. The new framework effectively marks a departure from the long-standing zero-MDR model for the specified category of merchant transactions, making its impact on businesses and digital-payment behaviour a matter of concern for traders.
For Lal Chowk’s trading community, the immediate concern is whether the additional transaction cost will remain manageable or whether it will alter the way businesses accept payments for higher-value purchases once the new framework takes effect on October 15. [KNT]
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