The National Payments Corporation of India (NPCI) on Tuesday announced a 0.4% merchant discount rate (MDR) on UPI transactions above Rs 2,000, subject to an overall cap of Rs 300. For utility payments, fuel purchases, insurance premiums, rail tickets and several government services, a flat charge of Rs 5 will apply.The MDR will have to be borne by merchants. Larger retailers, online platforms and restaurants, among others, may choose to absorb the cost. Cash transactions, meanwhile, also involve expenses, with several banks charging fees for cash deposits.The new MDR will take effect from October 15. However, UPI payments between individuals, including transfers made to friends, will continue to remain outside the charge. Auto-debits and UPI mandates will also not attract MDR.“Banks have been advised to ensure merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges,” the finance ministry said in a statement.If you are still wondering what transactions will be subject to what charge, we break it down for you:
UPI Transactions: What Remains Free
All Person-to-Person Transactions: UPI transfers made directly between individuals will continue to be completely free, regardless of the amount involved. Individuals will not be charged a transaction fee, platform fee or any other fee for sending or receiving money through UPI. As a result, transactions between individuals, which account for 70% of the total UPI transaction value, will remain outside the MDR framework.Merchant Payments Up to Rs 2,000: Person-to-merchant (P2M) UPI payments of up to Rs 2,000 will not attract MDR.Payments Received by Small Merchants: Small merchants, including street vendors, who receive up to Rs 1 lakh a month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to get zero MDR on all their transactions. This will ensure that street vendors, neighbourhood shops and other small businesses do not face additional costs for accepting digital payments.
Flat MDR for These UPI Transactions:
Certain merchant categories, including railways, telecom services, insurance and fuel, among others, will attract a flat MDR of Rs 5 for transactions above Rs 2,000. Unlike the 0.4% variable rate, these sectors will pay a fixed Rs 5 per transaction irrespective of the transaction value. So if you are paying for a railway ticket via UPI, it does not attract 0.4% MDR but Rs 5 which again is not borne by you but the merchant.The flat-fee structure is intended to prevent transaction costs from rising in critical public services, utility bill collection and low-margin sectors such as fuel retail. It also keeps essential consumer services digitally efficient and low-cost.
Capital Market transactions made through UPI
UPI transactions related to the capital market, including payments for mutual funds, securities, stockbrokers and dealers, will attract an MDR of 0.02% of the transaction value, subject to a maximum charge of Rs 300.This rate is lower than the standard rates applicable to commercial transactions and is intended to encourage retail participation in the formal financial market.The Capital Market MDR category covers regulated entities operating in the capital markets, including Asset Management Companies (Mutual Funds), SEBI-registered stockbrokers, securities dealers and investment platforms.The framework applies to UPI fund transfers made for equity purchases, debt market investments, mutual fund purchases and broker wallet top-ups. By placing these transactions in a separate category, capital market payments are distinguished from regular retail purchases and general service payments.
Insurance Premium
Insurance premiums paid through UPI are covered under a concessional flat-rate structure. For insurance payments above Rs 2,000, the MDR is fixed at Rs 5 per transaction instead of being calculated as a percentage of the payment amount.
Fuel purchased at petrol pumps
UPI payments for fuel purchases above Rs 2,000 at petrol stations will attract a flat MDR of Rs 5. The fixed charge is intended to prevent petrol pump operators from facing higher processing costs on larger fuel purchases.For fuel payments below Rs 2,000, the MDR will remain at 0%.
Electricity & Water Bills
Public utility payments, including electricity bills, municipal water charges and piped natural gas payments, fall under the designated Industry program category. For payments above Rs 2,000, a concessional flat MDR of Rs 5 will apply instead of the 0.4% variable rate.Utility bill payments below Rs 2,000 will continue to carry zero MDR.Recurring auto-debit payments such as utility bills, OTT subscriptionsAutomated recurring payments made through standing instructions, known as UPI Mandates or AutoPay, do not attract the prescribed MDR transaction charges.As a result, recurring payments set up through automated transfers, including monthly utility bills, OTT streaming subscriptions and recurring investments, will not incur the prescribed MDR charge on the transaction.
Education fees
Educational fee payments, such as school tuition, university term fees and institutional entrance examination charges, are covered under the designated Industry program category. Payments above Rs 2,000 will benefit from flat-fee structures or capped processing rates, rather than being subjected to high percentage-based charges on larger fee amounts.Educational payments up to Rs 2,000 will remain completely free of MDR.
