UPI over Rs 2,000 gets 0.4% MDR

P2P transfers, small payments and RuPay transactions stay free with no monthly quotas, Government clarifies

The Union Government on Tuesday introduced a 0.4 per cent fee on Unified Payments Interface (UPI) payment transfers worth more than Rs 2,000 made to merchants from October 15, while explicitly ring-fencing everyday person-to-person (P2P) transactions as well as small payments from any charge.

“Charges will apply only to person-to-merchant (P2M) transactions exceeding Rs 2,000,” the Union Ministry of Finance said in a statement, adding, “A nominal Merchant Discount Rate (MDR) of 0.4 per cent will be levied on P2M transactions above Rs 2,000. This commission will be shared amongst the payment ecosystem partners, including banks and app providers.” MDR is capped at Rs 300 for payments of Rs 75,000 and above.

The move drew sharp criticism from the Opposition parties. Congress leader Rahul Gandhi alleged that the levy was “once again surrender” by a “compromised” Prime Minister Narendra Modi to American pressure. The BJP hit back, accusing the Congress of spreading “fake news”, saying the Government had made it absolutely clear that MDR charges would not be levied on consumers.

Pradeep Bhandari, a BJP spokesperson, said the Congress’s statements were misleading. “The Congress is once again disseminating false information; 96 per cent of UPI merchant (P2M) transactions are worth Rs 2,000 or less and are entirely free of charges. RuPay debit card payments are also free of charge. Consumers do not have to pay any transaction fee and P2P UPI transactions remain completely free,” he posted on X.

The BJP leader also said the Government has made it clear that MDR charges will not be imposed on consumers. The Government notice instructs banks and payment system providers not to charge fees for Unified Payments Interface (UPI) transactions of Rs 2,000 or for payments made using RuPay debit cards.

Person-to-person (P2P) transfers — which make up 37 per cent of UPI’s transaction volume and 70 per cent of its transaction value — will continue to attract zero charges, irrespective of size. Small-value transactions up to Rs 2,000, which the Government said account for more than 95 per cent of total P2M volume, remain untouched.

“Customers will not be required to pay any charge when making such payments through UPI,” the finance ministry statement added. “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments,” the statement said.

Also, individuals will continue to have “unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions”, it said.

Essential and thin-margin sectors — railways, telecom, insurance, fuel and agricultural inputs — will pay a flat MDR of Rs 5 per transaction above Rs 2,000, intended to keep costs predictable for critical services; these categories account for nearly 17 per cent of P2M transaction volume but roughly 46 per cent of P2M transaction value.

The same flat-fee treatment extends to Government utility bill collection (electricity, water, piped gas) and educational fee payments such as school tuition and university fees above Rs 2,000, both similarly exempted below that threshold.

Payments into mutual funds, securities and through stockbrokers and dealers will attract a lighter 0.02 per cent MDR, capped at Rs 300 — a rate designed to keep the cost of investing low and encourage retail participation in formal financial markets.

The charges so collected will be distributed among the firms facilitating the transactions and are being introduced to bolster investment into infrastructure resilience, innovation, cybersecurity and customer service, the National Payments Corporation of India said.

The government has also moved to prevent the new charges from being quietly passed on to consumers: UPI app providers are barred from levying platform fees or hidden charges, and banks have been directed to ensure merchants do not pass MDR costs on to customers.

Small merchants remain the most protected category. Vendors receiving up to Rs 1 lakh a month via UPI QR codes -- classified under a Person-to-Person-Merchant (P2PM) framework — will continue to pay zero MDR on all transactions, with no requirement to register for GST or upgrade existing QR infrastructure.

Acquiring banks will track inward payments via a velocity check, and merchants exceeding Rs 1 lakh a month for three consecutive months move into the standard P2M category. Zero MDR under this framework also extends to rural and semi-urban QR payments, an area the government has flagged as a core policy priority.