5 Key Takeaways
- Jammu and Kashmir CM Omar Abdullah backed the Centre's plan to introduce a 0.4% merchant discount rate on UPI transactions above Rs 2,000.
- The fee applies only to merchant transactions above Rs 2,000; person-to-person UPI transfers remain free and consumers are not supposed to pay directly.
- Omar Abdullah argued that UPI infrastructure is expensive to maintain and people undervalue free services, while insisting ordinary users should not be burdened.
- Opposition leaders such as Rahul Gandhi criticized the move as a tax on UPI and Indians, warning that costs could be passed to consumers or hurt small businesses.
- The new merchant discount rate takes effect from October 15, with the finance ministry directing banks and providers to prevent merchants from passing fees to customers, though enforcement remains a key challenge.
We Don’t Appreciate What We Get for Free: Omar Abdullah Backs UPI Merchant Fee
Jammu and Kashmir Chief Minister Omar Abdullah has backed the Centre’s decision to introduce a 0.4 percent merchant discount rate on UPI payments above Rs 2,000. He argued that the infrastructure that powers India’s widely used instant payment system is expensive to maintain. His comments came on September 17, 2026, amid criticism from opposition leaders who say the move could hurt ordinary citizens. The new framework is scheduled to take effect from October 15.
What is the new UPI charge?
UPI, or Unified Payments Interface, allows instant bank-to-bank transfers through mobile apps. A merchant discount rate is the fee a merchant pays to banks and payment service providers when accepting a digital payment. Under the new rule, only merchant transactions above Rs 2,000 will attract a 0.4 percent merchant discount rate. Person-to-person transfers, such as sending money to friends or family, will not be charged. The Centre has clarified that individual consumers are not supposed to pay the fee directly.
Omar Abdullah’s argument
The Jammu and Kashmir chief minister said people often fail to value services that are available for free. He explained that not everyone will be charged under the new system.
“Not everyone is charged. First of all, person-to-person money transfers are not charged. After that, individual consumers will not be charged unless they cross a certain ceiling limit. As far as I understand, running this UPI system is not cheap. It takes a lot of money to run it. And the truth is, we don’t properly appreciate what we get for free,” he said.
He added that the government should make sure ordinary users are not burdened. However, he said he had no objection if companies were charged, because businesses already benefit from UPI.
“The government should ensure that the general public is not charged these fees. If a company is charged, I have no objection because companies make good money through UPI anyway,” Omar Abdullah said.
His support stands out because the announcement has provoked strong objections from opposition parties. Critics have argued that even if the fee is formally imposed on merchants, the cost could eventually be passed on to customers through higher prices or direct charges. Omar Abdullah’s position aligns more closely with the Centre’s argument that the digital payment ecosystem needs a sustainable revenue model.
Political reaction
Leader of Opposition in the Lok Sabha and former Congress president Rahul Gandhi sharply criticised the government. He accused Prime Minister Narendra Modi of taxing UPI and placing a burden on every Indian. He also linked the policy to India’s relationship with the United States under former President Donald Trump.
“Modiji has a completely different concept, he’s neither left nor right – he has decided to completely lie down straight and in front of Donald Trump. He’s put a tax on every single Indian person by taxing UPI and giving huge amount of money to the United States,” Gandhi said.
The opposition’s concern is that a merchant discount rate on UPI could discourage small businesses from accepting digital payments or could lead to extra charges for consumers. Since UPI has become one of India’s most popular payment methods, any change to its pricing structure is politically sensitive.
Government safeguards
The Union finance ministry has tried to address these fears. It said banks were asked to ensure that merchants do not pass merchant discount rate charges on to customers. It also stated that UPI application providers are expressly prohibited from imposing platform fees or hidden charges. This means the government expects the merchant-side fee to be absorbed by businesses rather than being added to the customer’s bill.
The ministry’s statement is meant to reassure the public that the new merchant discount rate is not a tax on individuals. It applies only to certain merchant transactions above Rs 2,000, and even then, the fee is supposed to be paid by the business. The real challenge will be enforcement, since customers may worry that some merchants will try to recover the fee through higher prices.
What happens next
The new merchant discount rate takes effect from October 15. In the coming weeks, banks, payment service providers, and merchants will need to update their systems to apply the charge correctly. Consumers will be watching closely to see whether any extra costs show up at checkout. The finance ministry’s instructions suggest there should be no direct charge to customers, but the practical impact will depend on how businesses respond.
Omar Abdullah’s comments highlight a larger debate about digital public infrastructure. UPI has expanded rapidly because it is simple, fast, and free for users. But maintaining that system involves real costs for banks and technology providers. The government is now trying to recover some of those costs from merchants without undermining UPI’s popularity.
For now, person-to-person UPI transfers remain free. Individual consumers should not face a direct charge under the government’s framework. The main change is that larger merchant transactions will carry a small processing fee. Whether that fee stays with businesses or eventually affects prices will be a key test of the policy.
The UPI fee rollout is likely to remain a political flashpoint. Supporters say it is a pragmatic step toward making the payments system financially sustainable. Critics argue it risks eroding the trust and convenience that made UPI successful. As the October 15 implementation date approaches, both sides will be watching how the rollout works in practice.
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