New Delhi: The government’s new UPI framework introduces charges on certain merchant payments while keeping person-to-person (P2P) transfers completely free. The Finance Ministry has clarified who pays the Merchant Discount Rate (MDR) and which transactions remain unaffected.
What Remains Free?
All P2P transactions will continue to be free, irrespective of the amount transferred. Individuals will also have unlimited free usage without monthly quotas, volume restrictions or tiered caps.
Merchant payments up to ₹2,000 will remain free. Transactions covered by the zero-MDR framework for small merchants will also attract no charge.
The government estimates that around 96% of all person-to-merchant (P2M) transactions will remain unaffected.
Where Will MDR Apply?
A 0.4% MDR will apply to specified merchant transactions above ₹2,000. For transactions worth ₹75,000 or more, the charge will be capped at ₹300 per transaction.
Essential and thin-margin sectors will receive separate treatment. UPI payments above ₹2,000 for railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5.
Payments related to mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, capped at ₹300 per transaction.
Will Customers Pay?
No. The Finance Ministry said MDR is a charge within the merchant payment ecosystem and not a fee imposed on customers making UPI payments.
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Banks have been advised to ensure merchants do not pass the MDR on to customers. UPI application providers are also prohibited from imposing platform fees or hidden charges.
The ministry clarified that MDR is neither a tax nor a government or NPCI levy. Collections will be shared among banks, payment service providers and UPI application providers.
Fund For Small Merchants
A dedicated fund will promote UPI adoption among small merchants. An amount equivalent to 5% of total MDR collections will be contributed to it.
The money will support wider UPI acceptance and payment infrastructure, particularly across rural and semi-urban India.
