New Delhi: India’s widely used UPI payment system is set for a new Merchant Discount Rate (MDR) framework from October 15, but ordinary customers will continue to make UPI payments without paying transaction charges.
The new structure mainly affects certain merchant transactions above Rs 2,000, while person-to-person transfers will remain free regardless of the amount.
What remains completely free
Customers will not be charged for making UPI payments to merchants up to Rs 2,000. Person-to-person transactions will also remain free, irrespective of the amount transferred.
Small merchants are also protected, with no MDR applicable to eligible merchant receipts up to Rs 1 lakh a month.
For consumers, this means a Rs 1,000 grocery bill or a Rs 10,000 transfer to a friend will not attract an additional UPI charge.
When merchants will pay
For merchant payments above Rs 2,000, an MDR of 0.4 per cent will apply, capped at Rs 300 per transaction. The merchant, rather than the customer, is expected to bear the charge.
Certain essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat Rs 5 charge for eligible transactions above Rs 2,000.
Transactions involving mutual funds, securities, stockbrokers and dealers will carry an MDR of 0.02 per cent, also capped at Rs 300.
Can shops charge customers extra?
The government has said merchants should not pass the MDR on to customers. Banks have been advised to ensure that customers are not made to pay the charge, while UPI applications cannot impose platform fees or hidden charges on such transactions.
For example, if a restaurant bill is Rs 6,000, the customer should pay Rs 6,000, while the applicable MDR would be borne by the merchant.
Why is the new system being introduced?
The government says the framework will provide financial support to banks, payment providers and UPI application providers involved in maintaining and expanding the digital payments network.
A portion of MDR collections will also support a fund aimed at encouraging UPI adoption among small merchants.
The government estimates that 96 per cent of person-to-merchant UPI transactions will remain free, keeping everyday digital payments accessible while creating a revenue mechanism for higher-value merchant transactions.