The government on September 15 announced a new transaction fee on certain Unified
Payments Interface (UPI) merchant payments, bringing an end to nearly six years of a fully
free UPI system for merchants.
From October 15, person-to-merchant (P2M) transactions above Rs 2,000 will attract a
merchant discount rate (MDR) of 0.4 per cent, with the charge capped at Rs 300 for payments
of Rs 75,000 and above. The new framework, however, keeps person-to-person (P2P)
payments completely free, regardless of the transaction amount. The government has also
retained zero MDR on small-value merchant payments of up to Rs 2,000.
The Finance Ministry said the new charges would apply only to P2M transactions exceeding
the Rs 2,000 threshold. “A nominal merchant discount rate (MDR) of 0.4 per cent will be
levied on P2M transactions above Rs 2,000,” it said, adding that the commission would be

distributed among payment ecosystem partners, including banks and app providers. P2P
transfers account for 37 per cent of UPI’s transaction volume and 70 per cent of its value.
Meanwhile, transactions of up to Rs 2,000 make up more than 95 per cent of total P2M
transaction volume.
As a result, the government estimates that only around 4 per cent of merchant transactions
will actually be affected by the new MDR. The new system also provides separate rates for
certain sectors.
Railways, telecom, insurance, fuel and agricultural inputs will face a flat MDR of Rs 5 per
transaction above Rs 2,000. These sectors account for nearly 17 per cent of P2M transaction
volume but about 46 per cent of its transaction value. Government utility bill payments,
including electricity, water and piped gas, as well as educational payments such as school
tuition and university fees above Rs 2,000, will also be charged a flat Rs 5 MDR.
Transactions below the Rs 2,000 threshold in these categories will remain free. Payments
involving mutual funds, securities, stockbrokers and dealers will carry a much lower MDR of
0.02 per cent, subject to a maximum of Rs 300. The government said the lower rate would
keep the cost of such transactions low while supporting retail participation in formal financial
markets.
For ordinary merchants, the 0.4 per cent rate means a Rs 3,000 purchase would result in an
MDR of Rs 12, while a Rs 50,000 payment would attract Rs 200. On a Rs 1 lakh transaction,
the percentage-based charge would otherwise be Rs 400, but the Rs 300 cap would apply.
The government has also introduced measures aimed at preventing the MDR from becoming
a direct cost for consumers.
UPI app providers will not be allowed to impose platform fees or hidden charges, while
banks have been advised to ensure that merchants do not transfer MDR costs to customers.
“UPI app providers are explicitly prohibited from levying platform fees or hidden charges,”
the Finance Ministry said. “Banks have been advised to ensure that merchants do not pass
MDR charges to customers for UPI payments.”
Small merchants will continue to receive broader protection. Vendors receiving up to Rs 1
lakh a month through UPI QR codes under the Person-to-Person-Merchant (P2PM)
framework will continue to pay zero MDR on all transactions. They will not need to obtain
GST registration or replace their existing QR infrastructure.
Acquiring banks will monitor incoming payments through a velocity check. A merchant that
crosses the Rs 1 lakh monthly threshold for three consecutive months will shift to the
standard P2M category. The zero-MDR provision will also cover QR payments in rural and
semi-urban areas.
The new MDR does not cover every form of UPI-linked payment. Direct payments from a
user’s bank account to a merchant account will fall under the framework, while credit-linked
transactions, including RuPay Credit Cards on UPI and pre-sanctioned credit lines, will
follow separate card rules. Recurring payments made through UPI Mandates or AutoPay,

such as utility bills, OTT subscriptions and recurring investments, will carry no MDR. There
will also be no monthly quota or volume-based limit on free UPI transactions for individuals.
Existing daily transaction limits of Rs 1 lakh to Rs 5 lakh, depending on the category, will
continue to serve as risk-management measures. The move follows sustained pressure from
parts of the payments and banking industry to restore merchant charges.
The Payments Council of India, whose members include Airtel Payments Bank, Amazon
Pay, Google Pay, Cashfree and Jio Payments Bank, had approached the Prime Minister’s
Office seeking a review of the zero-MDR policy. Banks had separately sought charges for
merchants with annual turnover exceeding Rs 40 lakh.
The Reserve Bank of India and the National Payments Corporation of India (NPCI) have also
previously called for a reconsideration of the zero-MDR arrangement. RBI Governor Sanjay
Malhotra, while discussing the issue after a recent monetary policy announcement, said,
“someone has to pay the cost”, while making clear that the decision on MDR ultimately rests
with the government.