New UPI rules will introduce a Merchant Discount Rate (MDR) on specified person-to-merchant (P2M) transactions above Rs 2,000 from October 15, but the change will not mean that consumers have to start
paying for UPI.
The government on Tuesday clarified that all person-to-person (P2P) UPI transactions will remain free, irrespective of the amount transferred. Merchant payments up to Rs 2,000 will also remain free, while small merchants covered under the zero-MDR framework will continue to be protected.
According to the government, MDR will apply to only about 4% of merchant transactions, leaving approximately 96% of P2M transactions unaffected.
Here are seven things UPI users will not have to pay for after October 15.
1. You will not pay for sending money to another person
All P2P UPI transactions will remain completely free, irrespective of the amount transferred. This means consumers will not have to pay a transaction fee, platform fee or other charge when sending or receiving money through UPI. The government said P2P transactions account for around 70% of UPI’s total transaction value and will remain outside the MDR framework.
2. You will not pay extra for merchant payments up to Rs 2,000
UPI payments to merchants of up to Rs 2,000 will remain free of MDR. So, customers buying everyday goods and services through UPI within the Rs 2,000 threshold will not face an additional payment charge.
3. You will not pay a UPI platform fee
UPI application providers will not be permitted to impose a platform fee or hidden charge on consumers for making UPI payments. The MDR is a charge within the merchant payment ecosystem and is not a fee collected from the customer.
4. You will not pay MDR even when a small merchant receives your payment
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on their transactions. This covers small businesses such as street vendors and neighbourhood shops.
“Small merchants including street vendors receiving up to Rs 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on all transactions. This provision will protect street vendors, neighbourhood shops and other small businesses from additional payment costs,” the finance ministry said in a statement on September 15.
5. You will not face a monthly UPI fee threshold
Consumers will continue to have free UPI usage without monthly quotas, volume restrictions or tiered caps on free transactions. Banks and NPCI may have daily transaction limits for security and risk-management purposes. These limits, generally ranging from Rs 1 lakh to Rs 5 lakh depending on the transaction category, are not charging thresholds.
6. You will not have to pay MDR on AutoPay transactions under this framework
UPI Mandates and AutoPay transactions, including recurring utility payments, OTT subscriptions and recurring investments, will not carry prescribed MDR transaction charges under the framework.
“Payments set up using automated recurring transfers for monthly utility bills, OTT streaming subscriptions, all recurring investments etc. will not pay any prescribed MDR charge for the transaction,” according to an NPCI FAQ.
7. You will not be charged MDR directly at the checkout
MDR is a merchant-side charge. Banks have been advised to ensure that merchants do not pass the charge on to customers. The government has clarified that consumers will continue to pay the listed price, with MDR remaining within the payment ecosystem.
So, what actually changes from October 15?
The change is primarily on the merchant side. A 0.4% MDR will apply to specified P2M UPI transactions above Rs 2,000, with the charge capped at Rs 300 for transactions of Rs 75,000 and above.
Certain sectors, including railways, telecommunications, insurance and fuel, will have a flat Rs 5 MDR on transactions above Rs 2,000. Capital-market transactions will have a separate 0.02% MDR, capped at Rs 300.
The government said the new framework will leave approximately 96% of merchant transactions unaffected, while keeping all P2P payments free.
The MDR will be distributed among payment ecosystem participants, including banks and payment application providers, rather than being collected as a tax or government fee.
