Fuel Dealers Oppose UPI 'Tax', Opposition Flays Govt Over 'Foreign Pressure' Behind MDR

New Delhi: Fuel retailers have opposed the UPI 'tax' recently imposed by the Union government on merchant transactions above Rs 2,000. Dealers from across the country have asked the finance ministry to withdraw the Rs 5 "flat fee" imposed on them starting October 15.

“Deduction of such huge amounts from the petroleum dealer's existing commission would be devastating and would push the Dealer to peril,” Akhila Karnataka Federation of Petroleum Traders (AKFPT), one of the associations, has said in a letter to the finance ministry and petroleum ministry.

A number of fuel retailer associations have said that their costs and margins are fixed by oil marketing companies, so they will not be able to pass on the burden of the additional Rs 5 to consumers. It would make their business unsustainable, the associations from Gujarat, Karnataka, and some all-India associations have told the government.

Fuel retailers contradict government's claim

The claims and complaints of the petroleum retailers contradict the position of the Union government that the Rs 5 flat fee on transactions above Rs 2,000 using UPI as well as the 0.4% tax on certain person-to-merchant transactions are minimal and that their burden would be borne by merchants and dealers and would not be passed on to consumers.

Union communications minister Jyotiraditya M. Scindia recently told ANI, “There is no recommendation to levy this on the customer. Doing so would violate the law and amount to a criminal offence."

However, Monty Sehgal, national spokesperson for the Federation of All India Petroleum Traders (FAIPT) said that the dealers may have to "stop accepting UPI payments of Rs 2,000 and above" if they are not exempted from the new regimen, reports Money Control.

The associations also said that the number of transactions valued over Rs 2,000 has been increasing at fuel bunks. They also pointed out that their margins have not been revised for close to a decade.

"We urge the government for recognition of fuel stations as a special category of merchants in view of the regulated pricing of petroleum products and the fixed, non-negotiable nature of dealer margins," the United Petroleum Dealers Association said.

UPI 'infrastructure'

As per a report in Hindustan Times, the UPI issue came up in the Union Cabinet recently and was also mentioned in a parliamentary standing committee meeting for the ministry of finance, though not taken up for discussion. The publication reported that Union commerce minister Piyush Goyal said the charges being imposed on UPI were important for structural reasons, and for improving public infrastructure.

The government has not yet clarified the meaning of "infrastructre" in the context of instant payment applications like PayTM, BharatPe or any other app. All these apps utilise a platform developed by government-owned National Payments Corporation of India, which it launched in 2016 as the Unified Payments Interface (UPI).

While state-owned NPCI, a non-profit company, operates the retail payment and settlement system in India, it has made UPI open source, meaning that payment apps can be built on the UPI platform by public or private entities. The Reserve Bank of India and Indian Banks Association promote and steer the NPCI and its shareholders include around 15 public-sector banks and others.

Transactions using UPI apps have ballooned over the years in India, with the value pegged by the governemnt at over Rs 314 lakh crore in August 2026. The RBI, too, reports a growth in UPI (app-based) transactions.

As per the Department of Financial Services (DFS) in the Union Ministry of Finance, UPI processed 2,451
crore transactions valued at Rs 29.9 lakh crore in August 2026 alone. It has also clarified that UPI transactions up to Rs 2,000 comprise more than 95% of the total volume of UPI (Person-to-Merchant) transactions, which faces the new tax starting mid-October.

The department also argues that "when payment processing operates under zero-MDR conditions, only well-capitalised tech conglomerates can afford to sustain long-term operational losses".

It is more likely that when the government refers to "infrastructure", it is talking about banks' payment settlement transaction costs and fees, which were exempted for UPI transactions since Marh 2020.

NITI Aayog vice-chairperson's 'personal' take on UPI 'tax'

As per the HT report, NITI Aayog vice-chairman Ashok Kumar Lahiri has defended the new charges on app-based transactions. “Costs are incurred in UPI: who will pay that?" he reportedly said. He also referred to the 0.4% charges on transactions as a "user pay principle" but clarified that this was "not NITI Aayog’s official position" but his personal view.

Lahiri said "users should pay up in all business transactions. Please do not think that the government would provide grants or subsidies for everything. How will the business run otherwise? Take less, take from business and take only that much which results in growth".

What has triggered this debate?

Last week, the Union government decided to impose a Merchant Discount Rate (MDR) on certain transactions made via UPI apps. These apps were earlier entirely exempt from MDR as there was an effort to promote online instant payment apps.

While the term includes the word "discount", MDR is actually a cost – it refers to the charges levied at the time of the transaction itself being made, on behalf of the bank or payment settlement agency that processes the transaction.

Person-to-person MDR is still not being imposed, as the new 0.4% rate applies only to person-to-merchant transactions above certain thresholds.

Opposition protests MDR 'tax'

The Congress party has called the MDR a 'tax', with Congress MP and leader of opposition in Lok Sabha Rahul Gandhi saying, "He [Modi] has put a tax on every single Indian person by taxing UPI and giving a huge amount of money to the United States. Modi-ji, please stop lying down in front of the United States. Have a spine, stand up and take back the UPI tax."

Congress party general secretary K.C. Venugopal called the MDR a "New Modi Tax" and alleged that it was announced "because of the surrendering attitude of PM Modi to the US. Every day they are giving punishment to the people of this country. Every day, common people are in great distress," he reportedly said.

The opposition has also questioned the procedure followed by the Modi government to introduce the MDR. Writing on X, Congress leader and MP Manish Tiwari said, citing party MP Gaurav Gogoi alleged that "no specific proposal" for the MDR was ever brought before the Parliamentary standing of Finance. He wrote on X that the rate, quantam and amount of fee to be charged, ceiling and exemption slabs etc. were not discussed. 

It is unfortunate that proceedings of Parliamentary Standing Committees that are supposed to be privileged are now sought to be used by the government to score brownie points .

My colleague @GauravGogoiAsm is correct no specific proposal qua the recent Merchant Discount Rate… https://t.co/wAeHURPWwO

— Manish Tewari (@ManishTewari) September 17, 2026

GST impact

There will be a GST impact to the new MDR, say reports. The Economic Times reports, citing taxation experts, that the monthly value of merchant payments above Rs 2,000 via UPI are Rs 6 lakh crore. At this rate, a uniform 0.4% MDR would imply gross GST (collections) of around Rs 5,184 crore annually, AKM Global indirect taxes lead, Ikesh Nagpal, told the newspaper. The figure might vary depending on input tax credit claimed.

The variance would arise because merchants not registered with GST would not be able to claim tax credit – such as sellers of fresh produce. Non-registered mom-and-pop stores would also face a permanent 18% GST on a part of these transactions – the service charnge – not the transaction value.

While the payment itself may appear small, the scale of digital transactions makes the transaction fees accumulate into massive government revenue. As per the Indian Express, the MDR could generate Rs 15,000 crore in additional revenue, as per a government official it spoke to. This amount, said the publication, will be shared between banks, payment apps and payment service providers.

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