A fresh merchant discount rate (MDR) charge on high-value unified payment interface (UPI) transactions has opened a new front in the payments industry, with petrol pump dealers and retailers warning that the ₹5 fee could push merchants towards cash just as the festive season is set to drive a surge in digital payments. Fuel dealers, whose commissions are largely set by oil marketing companies (OMCs), are demanding a complete exemption, arguing that they cannot absorb additional transaction costs without eating into already-thin margins.
The resistance comes as the government prepares to introduce an MDR on specified UPI merchant transactions exceeding ₹2,000, effective 15 October 2026. While the charge will be borne by merchants rather than consumers, petroleum dealers say the economics of fuel retailing leave them little room to absorb another cost.
Dealers in Delhi-NCR, Punjab, Uttar Pradesh, Mumbai, Karnataka and Rajasthan told
Hindustan Times (HT) that their margins are already narrow and largely outside their control. Individual dealers spoke on condition of anonymity, citing concerns about possible repercussions.
"We may have to stop accepting UPI payments of ₹2,000 and above if exemption is not allowed to fuel retailers," Federation of All India Petroleum Traders (FAIPT) spokesperson Monty Sehgal told HT.
Petrol and diesel dealers typically earn a fixed commission linked to the volume of fuel sold rather than a percentage of the transaction value. Dealers say this makes a payment charge particularly difficult to absorb when customers make large fuel purchases.
₹5 Is Small per Transaction but Significant in Aggregate
The National Payments Corporation of India (NPCI), in its frequently asked questions (FAQs) issued on Tuesday, said fuel purchases made through UPI at petrol stations would attract a concessional flat MDR of ₹5 where the transaction exceeds ₹2,000.
UPI fuel payments up to ₹2,000 will continue to carry zero MDR. The charge is applicable to the merchant and is not to be recovered from the customer.
For petrol pump operators, however, the issue is the cumulative impact rather than the size of an individual charge.
Uttar Pradesh-based dealer Hemant Sirohi, a member of the Empowering Petroleum Dealers Foundation (EPDF), cited official UPI transaction data to estimate that petrol pumps collectively handle around 23.9mn (million) transactions above the relevant threshold, with a total value of about ₹1,573 crore. He estimated that around a fifth of these transactions exceed ₹2,000 and said the resulting cost could amount to around ₹230- ₹250 per day for an individual pump.
Dealers argue that such costs must be absorbed from margins already under pressure.
There are 103,023 petrol pumps in India as of April 2026. More than 90% are operated by the three state-owned OMCs — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL). The remaining outlets are operated by private companies, including Nayara Energy, Jio-BP and Shell.
Petroleum Dealers Seek Blanket Exemption
The All-India Petroleum Dealers Association (AIPDA) has asked the government to exempt petrol pumps completely from MDR on UPI transactions, regardless of transaction size.
In a letter dated 16 September 2026, AIPDA said petrol and diesel are essential commodities and that high-value digital payments are routine at fuel stations. It argued that petroleum outlets are fundamentally different from ordinary retail businesses because dealers do not have the freedom to raise fuel prices to recover payment-processing costs.
The Akhila Karnataka Federation of Petroleum Traders (AKFPT) has made a similar representation to the government and state-owned oil companies.
According to AKFPT, petrol and diesel selling prices are determined by OMCs, while dealers operate within a prescribed commission and margin structure. A dealer, therefore, cannot simply increase the retail price to compensate for the cost of a particular payment method.
AIPDA president Ajay Bansal has also pointed out that dealer commissions have not been revised since October 2017, while operating expenses such as wages, electricity and regulatory compliance costs have continued to rise.
The Association has opposed both a fixed ₹5 charge and any percentage-based MDR for petroleum outlets.
It has argued that a percentage-based charge of up to 0.4% would be particularly disproportionate because the value of a fuel transaction can be high even though the dealer's earnings are based primarily on the quantity sold.
UPI's MDR Expansion Faces Pushback from Merchants
The dispute is not confined to fuel retailers. The Retailers Association of India (RAI) has warned that the introduction of MDR on UPI merchant payments above ₹2,000 could encourage small retailers to shift customers towards cash.
RAI chief executive officer (CEO) Kumar Rajagopalan said merchants operating on thin margins could begin reconsidering whether to accept UPI for larger transactions. The Association has also questioned why bank-account-linked UPI payments should be treated in the same way as credit transactions, arguing that most UPI payments draw directly from savings or current accounts.
RAI plans to take up the issue with the NPCI and the finance ministry and has sought a graded approach that distinguishes debit-linked UPI transactions from credit-linked payments.
The Association has also raised concerns about the potential impact on the government's formalisation drive. It argues that moving transactions from digital platforms back to cash could reduce the traceability of sales and work against the broader objective of bringing more economic activity into the formal system.
The Clothing Manufacturers Association of India (CMAI) has separately expressed concern about the timing of the change, which comes just as businesses enter the crucial festive sales period.
CMAI president Santosh Katariya said additional costs on digital transactions could put further pressure on retailers and consumer-facing businesses already trying to improve margins and revive demand.
Fuel Dealers Say OMCs Cannot Simply Absorb the Cost
Petroleum dealers have also rejected the idea that shifting the MDR burden from individual dealers to OMCs would necessarily solve the problem.
Dealers in Mumbai and New Delhi have called for the complete removal of MDR for petrol pumps. They have argued that arrangements involving oil companies and payment service providers have created problems for dealers in the past, including concerns over payment-processing practices and the commercial terms offered by service providers.
These claims could not be independently established from the information available. AIPDA, however, has indicated that discussions with the government are continuing.
In a
post on X, the association said it had held meetings with senior officials of MOPNG to explain its concerns. According to AIPDA, officials explained the rationale behind the MDR and said it could help build the next layer of UPI's digital infrastructure.
The association said its concerns had been heard and that it expected further discussions involving consumers, petroleum dealers and other participants in the UPI ecosystem.
The core disagreement is over who should bear the cost of maintaining and expanding a payment system that has become central to India's retail economy.
For ordinary merchants, a ₹5 charge on a transaction above ₹2,000 may appear modest. Fuel dealers contend that the comparison does not hold because their earnings do not rise in proportion to the value of the sale.
A customer buying ₹5,000 worth of fuel generates a substantially larger payment but does not necessarily generate a proportionately larger dealer commission. The ₹5 MDR, therefore, represents a direct deduction from the dealer's existing margin.
AIPDA has warned that repeated charges across thousands of transactions could become a significant recurring expense for fuel retailers.
The association has also cautioned that forcing dealers to discourage high-value UPI payments would run counter to the government's wider push for digital payments, transparency and formalisation.
Under the proposed framework, customers will not pay the MDR directly. A UPI payment of ₹500, ₹1,000, or ₹2,000 at a merchant will remain free, while person-to-person UPI transactions will also remain free of charge.
But the dealers' response could have an indirect effect on consumers. If fuel retailers decide that high-value UPI transactions are too expensive, customers making larger purchases could be asked to use cash or another payment method.
For the government and payment ecosystem, the challenge is, therefore, not simply the collection of a few rupees per transaction. It is whether the new charge can be introduced without encouraging merchants in low-margin businesses to retreat from a payment system that has become an important part of everyday commerce.
