Fuel dealers seek exemption from ₹5 MDR, warn UPI payments may stop from October 15

Petroleum dealers across the country have objected to a charge on digital fuel payments and have asked the government to exempt all fuel retail outlets from the Merchant Discount Rate (MDR) framework, irrespective of the value of a transaction.

The immediate trigger is a flat ₹5 MDR that fuel outlets will be required to pay on every transaction above ₹2,000 beginning October 15.

MDR is the fee a merchant pays to banks and payment service providers for accepting card or digital payments. Petroleum dealers say the levy threatens their thin, regulated margins.

“A large proportion of fuel sales are high value transactions that routinely exceed ₹2,000. Any additional charge would erode the dealer margin,” United Petroleum Dealers Association general secretary M. Amarender Reddy said on Wednesday.

He said pump prices of petrol and diesel are determined and controlled under the framework of the State-owned oil marketing companies (OMCs) and government policy. Dealer commission is fixed on a per-litre basis, which leaves dealers with little freedom to revise the selling price or independently adjust margins to cover any additional cost arising from a particular payment mode.

K. Suresh Kumar, general secretary of the Consortium of Indian Petroleum Dealers, estimated the additional expenditure at ₹40,000 to ₹50,000 a month for high-volume city and highway outlets. “We may have to stop accepting UPI payments if the government proceeds as planned,” he said, adding that the OMCs are in discussions with the authorities.

The dealers’ associations have placed their demand before the Union Finance Minister, the Petroleum Minister, the Reserve Bank of India Governor, the National Payments Corporation of India and the OMCs.

In his representation, Mr. Reddy said fuel dealers had “wholeheartedly supported” digital payments at their retail outlets as part of national digital payment initiatives. “Penalising them for accepting the very infrastructure that has been encouraged is inequitable and contrary to the objective of a cashless economy,” he said.

He demanded that fuel outlets be recognised as a special category of merchants, citing the regulated pricing of petroleum products and the fixed dealer commission as reasons that set them apart from other retailers.

The United Petroleum Dealers Association also opposed any move to shift the MDR burden to the OMCs. It cited past experience when arrangements involving the oil companies and their fintech or payment partners “frequently resulted in delayed settlement of sale proceeds and other issues”. “Such practices have already short-changed dealers,” Mr. Reddy said.

The dealers’ central argument rests on the structure of fuel retailing in India. Unlike most merchants, who can build a payment-related cost into their selling price, fuel outlet owners operate on a commission fixed per litre of petrol or diesel sold, while retail prices are set by the OMCs in line with government policy. Any levy on transactions, they contend, must therefore come out of that fixed commission.

Fuel stations are among the largest acceptance points for the Unified Payments Interface (UPI) by value, because a single refill often exceeds ₹2,000. Dealers argue that a per-transaction charge at this volume adds up quickly across a month, particularly for outlets on highways and in busy urban areas that handle a high number of refills each day.

The associations have not withdrawn their demand, and say they remain open to discussions with the authorities and the OMCs. The matter is now with the government, the RBI, the NPCI and the oil marketing companies, which are examining the dealers’ request for an exemption.