UPI New Charges: 0.4% MDR Above Rs 2,000, Rs 300 Cap; Small Payments And P2P Transfers Stay Free

UPI payments are set to see a change in the way certain merchant transactions are charged, with the National Payments Corporation of India (NPCI) introducing a 0.4% Merchant Discount Rate (MDR) on eligible person-to-merchant payments above Rs 2,000.

UPI Payments New Rules: 0.4% MDR Above Rs 2,000,

The change does not mean that customers will have to pay an additional fee every time they use UPI. MDR is a charge within the digital payments ecosystem and applies to eligible merchant transactions. Person-to-person UPI transfers will continue to remain free, irrespective of the transaction value.

The new framework comes after the Centre's September 14 notification confirming that UPI merchant payments of up to Rs 2,000 will continue to attract zero MDR.

What Changes For UPI Merchant Payments Above Rs 2,000?

Under the new framework, a 0.4% MDR will apply when a customer makes an eligible UPI payment of more than Rs 2,000 to a merchant. MDR is essentially the fee associated with processing a digital payment and is distributed among banks, UPI applications and other participants involved in processing the transaction.

For instance, if an eligible merchant payment is Rs 5,000, the applicable MDR would work out to Rs 20. This does not automatically mean that the customer will have to pay Rs 20 separately, as MDR is a charge within the merchant payment system.

The rules also put a ceiling on the MDR for larger transactions. For merchant payments of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction. This prevents the charge from increasing indefinitely as the transaction value becomes larger.

UPI Payments Up To Rs 2,000 Will Remain Free

The zero-MDR treatment for UPI merchant payments up to Rs 2,000 will continue. This means customers can continue using UPI for routine purchases such as groceries, food, local transport, medicines and other small-value payments without an MDR being applied.

The government estimates that the revised structure will cover only around 4% of merchant transactions because most UPI payments made to merchants are below the Rs 2,000 threshold.

The framework therefore creates a distinction between smaller everyday payments and higher-value merchant transactions while protecting low-value digital payments from the new charge.

Person-To-Person UPI Transfers Will Remain Free

The new MDR rules do not apply to person-to-person UPI transfers. Money sent directly from one individual to another will remain free regardless of the amount involved.

This is significant because person-to-person transactions account for around 37% of UPI transaction volumes and nearly 70% of transaction value, according to the notification details. Therefore, transferring Rs 5,000 to a friend or sending Rs 50,000 to a family member through a person-to-person UPI transaction will not attract the 0.4% MDR.

Small Vendors Get Protection Under P2PM

Small sellers and informal vendors will also continue to receive protection under the Person-to-Person-Merchant, or P2PM, category. Transactions under this category up to Rs 1 lakh per month will continue to carry zero MDR.

The provision is aimed at small vendors such as street sellers who accept digital payments but may not operate through the same merchant systems used by larger businesses. Keeping these transactions free is intended to encourage small businesses to continue accepting digital payments without adding another cost to their operations.

Special Rates For Railways, Telecom, Insurance And Fuel

The 0.4% rate will not apply uniformly to every high-value merchant payment. Certain essential sectors have been given a separate MDR structure. Payments above Rs 2,000 for services such as railways, telecom, insurance and fuel will attract a flat MDR of Rs 5 per transaction.

This means the charge will remain fixed at Rs 5 rather than increasing with the transaction value under the standard 0.4% structure.

Lower MDR For Mutual Funds And Securities Transactions

Payments related to mutual funds, securities, stock brokers and dealers will attract an even lower MDR of 0.02%. This charge will be capped at Rs 300 per transaction.

The lower rate is relevant because financial-market transactions can involve significantly larger amounts than regular retail payments. A higher percentage-based charge could otherwise result in a much larger processing cost.

The Rs 300 cap ensures that the MDR does not continue increasing as the value of the transaction rises.

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