The new UPI framework has introduced changes to how certain merchant transactions are charged, including a 0.4% merchant discount rate (MDR) for specified transactions above Rs 2,000. However, customers will not have to pay the MDR, according to the government.
UPI payments between individuals will continue to remain free regardless of the transaction amount. Person-to-merchant payments up to Rs 2,000 will also remain free, while the government expects around 96% of merchant transactions to remain unaffected.
The revised framework primarily covers larger merchant transactions and specified sectors.
Will customers have to pay the 0.4% MDR?
No. MDR is a charge within the merchant payment ecosystem and is not a fee imposed directly on customers making UPI payments.
Banks have been advised to ensure merchants do not pass the MDR on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges.
Will UPI railway ticket payments become more expensive?
Railway ticket transactions above Rs 2,000 fall under specified categories where a flat Rs 5 MDR applies instead of the standard 0.4% rate.
The charge applies within the payment ecosystem and is not intended to be passed on to the customer.
What happens when you pay for fuel through UPI?
Fuel payments above Rs 2,000 will attract a flat Rs 5 MDR instead of the 0.4% rate.
Payments of up to Rs 2,000 will continue to have zero MDR. The framework therefore uses a fixed charge for higher-value fuel transactions rather than a percentage that increases with the transaction value.
The MDR is not supposed to be passed on to customers.
What about insurance premium payments?
Insurance premium payments above Rs 2,000 will attract a flat Rs 5 MDR instead of the standard 0.4% rate.
This is a payment-ecosystem charge and does not mean that policyholders will have to pay an additional Rs 5.
Will electricity and water bill payments attract 0.4% MDR?
No. Utility payments above Rs 2,000 covered under the designated category will attract a flat Rs 5 MDR rather than the standard 0.4% rate.
Payments up to Rs 2,000 will continue to remain zero-MDR.
What about school and college fee payments?
Educational fee collections above Rs 2,000 fall under designated categories with flat-fee structures or capped processing rates rather than necessarily attracting the standard 0.4% MDR.
The government said school tuition, university term fees and institutional entrance examinations are covered under the designated Industry Program category.
Educational transactions up to Rs 2,000 will remain free of MDR, while higher-value payments will benefit from structures intended to prevent large percentage-based charges.
Which UPI transactions remain completely free?
Several categories will continue to remain free of MDR:
- All person-to-person UPI transactions, regardless of the amount.
- Person-to-merchant payments up to Rs 2,000.
- UPI QR payments received by small merchants under the P2PM category, up to Rs 1 lakh per month.
How many UPI merchant transactions will be affected?
According to the government, MDR will apply to around 4% of merchant UPI transactions, while approximately 96% will remain unaffected.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee on applicable rates, operational arrangements and consumer safeguards.
The government said the changes are aimed at supporting the long-term sustainability of UPI while keeping person-to-person payments free and protecting small merchants.
Revenue from larger merchant transactions is expected to support banks, payment service providers and UPI application providers in expanding and improving digital payment infrastructure, including in rural and semi-urban areas.
UPI MDR: Key points at a glance
| Transaction type | MDR treatment |
|---|---|
| Person-to-person UPI | Free |
| Merchant payment up to Rs 2,000 | Free |
| Fuel above Rs 2,000 | Flat Rs 5 MDR |
| Railway transactions above Rs 2,000 | Flat Rs 5 MDR |
| Insurance premium above Rs 2,000 | Flat Rs 5 MDR |
| Utility bills above Rs 2,000 | Flat Rs 5 MDR |
| Small merchants under P2PM up to Rs 1 lakh/month | Zero MDR |
| Other specified merchant transactions above Rs 2,000 | 0.4% MDR, subject to applicable category rules |
The new UPI framework changes how certain merchant transactions are charged within the payment ecosystem, but customers are not supposed to bear the MDR. Everyday person-to-person payments and most smaller merchant transactions remain free.
