New UPI framework introduces 0.4 per cent MDR on specified merchant transactions above Rs 2,000, with charges capped at Rs 300 for transactions of Rs 75,000 and above
UPI payments will continue to remain free for all person-to-person (P2P) transactions, irrespective of the amount transferred, under a new framework announced on Tuesday.
According to the government, payments to merchants of up to Rs 2,000 will also remain free, while small merchants covered under the zero-MDR framework will continue to pay no merchant discount rate (MDR).
As a result, around 96 per cent of all person-to-merchant (P2M) transactions are expected to remain unaffected.
A nominal MDR of 0.4 per cent will apply to specified P2M transactions above Rs 2,000. For high-value transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.
The government clarified that MDR is neither a tax nor a charge collected by the government or NPCI. It is distributed among participants in the payments ecosystem, including banks, payment service providers and UPI application providers.
The framework also provides continued zero-MDR treatment for small merchants, including street vendors and neighbourhood businesses receiving up to Rs 1 lakh a month through UPI QR codes under the P2PM category.
Transactions above Rs 2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 per transaction.
More from BusinessCapital market transactions, including payments related to mutual funds, securities, stockbrokers and dealers, will attract an MDR of 0.02 per cent, capped at Rs 300 per transaction.
Customers will not be required to pay MDR. Banks have been advised to ensure that merchants do not pass the charge on to customers, while UPI application providers have been prohibited from imposing platform fees or hidden charges.
The government said individuals will continue to have unlimited free UPI usage, with no monthly quotas or tiered caps on free transactions.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee. A dedicated fund will also be created for small merchants, with an amount equivalent to 5 per cent of total MDR collections earmarked to support wider UPI adoption.
