The new UPI framework has taken effect, introducing a merchant discount rate (MDR) on certain high-value merchant transactions. However, the charge will not be directly levied on customers, according to the government.
Under the new structure, a 0.4 per cent MDR applies to specified merchant transactions above Rs 2,000. Person-to-person UPI payments will continue to be free, while merchant payments up to Rs 2,000 will also carry zero MDR.
The government estimates that around 96 per cent of merchant UPI transactions will remain unaffected.
Fuel, insurance and railway payments
For some categories, transactions above Rs 2,000 will not attract the standard 0.4 per cent rate. Fuel payments above Rs 2,000, for instance, will carry a flat Rs 5 MDR. Payments up to Rs 2,000 will remain free of MDR.
The same Rs 5 charge applies within the merchant payment ecosystem to insurance premium payments above Rs 2,000. Customers are not expected to pay this amount separately.
Railway ticket transactions above Rs 2,000 also fall under the specified categories where a flat Rs 5 MDR applies.
What about utility and education payments?
Electricity and water bill payments above Rs 2,000 under the designated utility category will attract a flat Rs 5 MDR instead of the standard 0.4 per cent rate. Transactions up to Rs 2,000 remain zero-MDR.
Educational fee collections above Rs 2,000 are covered under designated categories with flat-fee structures or capped processing rates.
“Educational fee collections, including school tuition, university term fees, and institutional entrance examinations, fall under designated Industry program category. Transactions above ₹2,000 benefit from flat-fee structures or capped processing rates, preventing high percentage-based fees on large fee amounts. Educational transactions up to ₹2,000 remain completely free of MDR. This measure ensures schools, colleges, and students can process tuition fees digitally without heavy administrative fees,” according to the government.
Can merchants pass MDR to customers?
The government has said banks must ensure merchants do not pass the MDR on to customers. UPI application providers have also been barred from imposing platform fees or hidden charges.
Which UPI payments remain free?
All person-to-person UPI transactions remain free regardless of the amount. Person-to-merchant payments up to Rs 2,000 will also continue without MDR.
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes under the P2PM category will retain zero-MDR transactions.
According to the government, MDR will affect only about 4 per cent of merchant transactions, leaving approximately 96 per cent outside the new charge structure.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, with the government saying the revenue from larger merchant transactions will support payment infrastructure and its expansion into rural and semi-urban areas.