MDR charges announced: Who will pay how much for UPI transactions - The Indian Express

The government on Tuesday (September 15) announced the merchant discount rate (MDR) regime for UPI transactions, exempting person-to-person payments from the levy irrespective of the transaction amount.

This means MDR will essentially be levied on payments to merchants, and that too, on transaction amounts of over Rs 2,000 at the rate of 0.4%, with a few exceptions like payments for essential services and capital market transactions.

The announcement comes a day after the government exempted all UPI payments up to Rs 2,000 and RuPay debit card transactions from any bank charges.

Notably, the government asserted that the MDR is a charge “within the merchant payment ecosystem”, and not on customers making UPI payments. The government has advised banks to ensure that merchants do not pass MDR charges to customers. UPI application providers are “expressly prohibited from imposing platform fees or hidden charges”, the Finance Ministry said.

“Because the proposed UPI MDR is significantly lower than credit card fees and applies only above specific transaction thresholds, shopkeepers have no economic incentive to inflate retail shelf prices. Consumers will continue paying the exact listed price for goods and services,” the National Payments Corporation of India (NPCI) said Tuesday.

The finalised MDR framework and threshold structure will be effective from October 15. According to the NPCI, this provides acquiring banks, payment aggregators, fintech applications, and corporate accounting platforms “adequate lead time to update their software engines and billing systems”.

UPI will continue to remain “completely free for all person-to-person transactions, irrespective of the amount transferred”, NPCI said. This means that payments made to individuals, family, friends, and personal contacts will remain completely free for the sender as well as the receiver.

Payments to merchants, or person-to-merchant (P2M) transactions, of up to Rs 2,000, will remain free, but payments above this threshold will attract o.4% MDR. For high-value UPI payments to merchants exceeding Rs 75,000, the 0.4% MDR will be capped at Rs 300 per transaction.

Payments for essential services like railways, telecommunications, insurance, fuel, utility bill payments (including electricity, water, piped gas), educational transactions, and agricultural inputs will attract a flat MDR of Rs 5 per transaction, instead of the 0.4% levy.

Payments relating to mutual funds, securities, stockbrokers, and dealers will attract an MDR of 0.02%, capped at Rs 300 per transaction.

Monthly utility bills, OTT subscriptions, recurring investments, etc paid through automated recurring standing instructions — UPI Mandates or AutoPay — won’t face MDR charges.

Ideally not. The government said on Tuesday that it has “advised” banks to ensure that merchants do not pass on the additional MDR cost to consumers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges. What remains to be seen is if merchants start passing on MDR charge to consumers even if the price they pay is below the maximum retail price.

According to National Payments Corporation of India, “market dynamics and historical payment trends show that merchants absorb nominal digital processing costs to drive higher business volume. Payment acceptance costs are considered standard operational overheads that are offset by increased footfall, higher average ticket values, and reduced cash-handling risks.”

“Because the proposed UPI MDR is significantly lower than credit card fees (explained further ahead) and applies only above specific transaction thresholds, shopkeepers have no economic incentive to inflate retail shelf prices. Consumers will continue paying the exact listed price for goods and services,” it said.

What about micro merchants and small vendors?

Small merchants, including street vendors, receiving up to Rs 1 lakh per month through UPI QR codes into their personal bank accounts will not be subjected to MDR charges.

These small merchants are part of a special category — Person-to-Person-Merchant (P2PM). According to the NPCI, small merchants aren’t required to replace or re-register their QR codes under the new MDR framework.

Banks and payment service providers use transaction velocity check for P2PM merchants to monitor their Rs 1-lakh-per-month inflow threshold. The NPCI on Tuesday said that merchants with inward credit of aggregate UPI payments of over Rs 1 lakh per month, consecutively for 3 months, get moved to the regular merchant category — P2M, or person-to-merchant — that attracts an MDR charge of 0.4% on transactions above Rs 2,000.

UPI processes billions of transactions every month. Given the high transaction volumes, the NPCI’s argument is that this MDR will help in further investments into infrastructure resiliency, innovation, cybersecurity, and customer service.

“UPI is a home-grown payment system, and NPCI claims its charges (MDR) are much lower than other payment instruments such as credit cards, debit cards, wallets etc. The charges are kept very reasonable and will be applicable only for transactions above Rs 2,000 to ensure UPI remains the most affordable mode of accepting payments,” the NPCI said Tuesday.

Despite the MDR charges having being announced for UPI payments, most merchant transactions will remain unaffected, according to the government. Data indicates that effectively, MDR will apply to only about 4% of merchant transactions, while 96% will remain unaffected as hey are either below the Rs 2,000 threshold or covered by the zero-MDR framework for small merchants, it added.

UPI MDR is lower than traditional card-based transaction fees, which typically range from 1.5% to 2.5% per transaction; debit card MDRs are capped up to 0.90%. The baseline UPI MDR will be 0.4% on transactions above Rs 2,000, and capped at Rs 300 for high-value purchases.

Sukalp Sharma is a Deputy Associate Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 16 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More

Aanchal Magazine is a Deputy Associate Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With 15 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience. Expertise & Focus Areas: Magazine’s reporting is rooted in "fiscal arithmetic" and economic science. Her work provides critical insights into the financial health of the nation, focusing on: Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions. Fiscal Metrics: Analysis of taxation, revenue collection, and government spending. Labour & Society: Reporting on labour trends and the intersection of economic policy with employment. Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy. Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region's culture and traditions and works to map the complex journeys of displacement associated with it. Find all stories by Aanchal Magazine here ... Read More