UPI Charges Explained

New Delhi, September 16: India’s Unified Payments Interface (UPI) framework has introduced changes to the way certain merchant transactions are charged, but ordinary customers will not have to pay the new Merchant Discount Rate (MDR).

Under the new framework, a 0.4% MDR applies to specified merchant transactions above ₹2,000. However, the charge is part of the payment ecosystem and is not supposed to be passed on to customers. Banks have been advised to ensure that merchants do not recover the MDR from customers, while UPI apps cannot impose platform fees or hidden charges.

Person-to-person UPI transfers will continue to remain free regardless of the amount. Payments made to merchants up to ₹2,000 will also remain free. According to the government, around 96% of merchant UPI transactions will remain unaffected, with MDR applying to only about 4%.

Some categories have separate flat charges. For example, UPI payments for railway tickets above ₹2,000 will attract a flat ₹5 MDR instead of the standard 0.4% rate. The same ₹5 MDR structure applies to fuel payments, insurance premiums and certain utility bill payments above ₹2,000. Customers are not supposed to pay these charges separately.

For electricity and water bills covered under the designated category, transactions above ₹2,000 will also follow the ₹5 flat MDR structure, while payments up to ₹2,000 remain free of MDR.

Educational payments have also been included under designated categories. School and college fee collections above ₹2,000 can come under flat-fee or capped processing structures rather than the standard percentage-based MDR. Payments up to ₹2,000 remain free of MDR.

Small merchants also continue to receive protection under the framework. Merchants receiving up to ₹1 lakh per month through UPI QR codes under the applicable P2PM category will continue to enjoy zero MDR.

The government said the new system has been introduced under the Payment and Settlement Systems Act, 2007, following discussions by the UPI Steering Committee. The stated objective is to make the digital payments ecosystem financially sustainable while keeping person-to-person payments free and protecting small merchants.

Revenue from larger merchant transactions is expected to help banks, payment service providers and UPI apps maintain and expand payment infrastructure, including services in rural and semi-urban areas.

For consumers, the key takeaway is simple: scanning a UPI QR code does not automatically mean an additional charge, even when the transaction is above ₹2,000. The MDR is primarily a charge within the merchant-payment ecosystem and, under the new rules, should not be added to the customer’s bill.