UPI Charges Above ₹2,000: What Changes and Who Will Pay the New MDR?
India’s Unified Payments Interface (UPI) is set to enter a new phase with the introduction of a Merchant Discount Rate (MDR) on certain high-value merchant transactions. The new framework applies to eligible UPI merchant payments above ₹2,000, while person-to-person UPI transfers remain free.
The changes are aimed at supporting the long-term sustainability of India’s digital payments infrastructure, including spending on payment infrastructure, cybersecurity and fraud monitoring.
What Has Changed?
Under the revised framework, eligible merchant UPI transactions above ₹2,000 will attract an MDR of 0.4%. The charge is payable by the merchant and is not intended to be collected separately from the customer.
For example, if a customer purchases a product worth ₹3,000 and pays through UPI, the applicable MDR at 0.4% would be ₹12.
The MDR is capped at ₹300 per transaction. At a 0.4% rate, the ₹300 maximum is reached on a transaction of ₹75,000. For transactions above ₹75,000, the MDR remains capped at ₹300.
Will Customers Have to Pay the MDR?
No. Person-to-person UPI payments remain free, and customers are not supposed to pay the MDR as an additional charge when making eligible merchant payments through UPI.
Banks and payment service providers have been instructed to ensure that merchants do not pass the MDR directly on to customers while accepting UPI payments.
Therefore, if an eligible product costs ₹3,000, the customer should still pay ₹3,000, rather than ₹3,012 as a separate UPI charge.
Which Payments Have a Flat ₹5 MDR?
Certain categories of merchant transactions above ₹2,000 are subject to a flat ₹5 MDR instead of the 0.4% rate.
These categories include:
- Railways
- Fuel
- Telecom services
- Insurance
The ₹5 charge is part of the merchant payment system and is payable by the relevant merchant or service provider rather than being charged directly to the customer.
Small Merchants Continue to Get Zero MDR
The framework provides an exemption for small merchants.
Merchants receiving up to ₹1 lakh per month through eligible UPI payments will continue to benefit from zero MDR.
This means small businesses and street vendors within the specified threshold will not have to pay the new merchant charge.
What About Mutual Funds and Capital Market Payments?
UPI transactions connected with capital-market-related payments have a separate MDR structure.
The applicable rate is 0.02%, subject to a maximum MDR of ₹300 per transaction.
This category covers eligible payments associated with areas such as mutual funds and other capital market activities under the applicable framework.
Why Is MDR Being Introduced?
The revised MDR framework is intended to help support the financial sustainability of the UPI ecosystem.
The costs associated with operating a large-scale digital payment network include payment infrastructure, cybersecurity, fraud monitoring and other technology-related requirements.
The framework is designed to create a mechanism through which eligible merchant transactions can contribute toward these costs while keeping most everyday UPI payments free for consumers.
How Will the New UPI Charges Affect Users?
For most consumers, there will be no direct change to everyday UPI payments.
Sending money to another person through UPI remains free. Many smaller merchant transactions will also remain outside the MDR framework, while small merchants meeting the applicable monthly threshold continue to receive zero-MDR treatment.
The main change concerns eligible higher-value merchant transactions, where the MDR is applied within the merchant payment ecosystem.
Quick Summary of the New UPI MDR Rules
| Transaction Type | Applicable MDR |
|---|---|
| Person-to-person UPI payment | Free |
| Eligible merchant payment above ₹2,000 | 0.4%, capped at ₹300 |
| 0.4% MDR cap reached at | ₹75,000 transaction value |
| Eligible railway, fuel, telecom and insurance payments above ₹2,000 | Flat ₹5 |
| Small merchants receiving up to ₹1 lakh/month | Zero MDR |
| Eligible capital market-related payments | 0.02%, capped at ₹300 |
Bottom Line
The new MDR framework does not mean that UPI has become a paid service for ordinary users. Person-to-person payments remain free, and customers are not supposed to be charged the MDR separately.
The change primarily introduces charges within the merchant payment system for specified higher-value transactions, while exemptions continue to protect small merchants and most routine UPI users.
