New Delhi: India’s click-and-pay UPI services will attract a fractional charge above Rs 2,000 for merchant payments, the government has notified, while ruling out charges on person-to-person transactions.
The new UPI Merchant Discount Rate (MDR) framework will come into effect from October 15.
Under the new framework, a 0.4% charge will be levied on transactions made by consumers to merchants, the National Payments Corporation of India (NPCI) stated in its new rules for Unified Payments Interface (UPI).
The charge is capped at Rs 300 per transaction, with the Finance Ministry advising banks to ensure that merchants do not pass it on to consumers.
For merchant categories such as railways, telecom services, insurance and fuel, the NPCI stated that a flat rate of Rs 5 will be levied on UPI payments above Rs 2,000.
“Consumers will continue to transact free of cost using UPI as they have been doing till now. Person-to-Person (P2P) transactions and Person-to-Merchant (P2M) transactions up to Rs 2,000 remain outside the scope of MDR,” it said.
In essence, if a transaction above Rs 2,000 is made at a merchant, the seller will have to pay the 0.4% charge. This makes it a minimum of Rs 8 on a transaction of Rs 2,001. However, sending money to a friend through UPI is considered a person-to-person transaction and remains free even if it is above Rs 2,000.
The NPCI pointed out that the charges are lower than those applicable to other digital payment instruments such as credit cards, debit cards and wallets.
Over the past few weeks, the government had repeatedly asserted that UPI payments would remain free up to Rs 2,000. However, it remained unclear what would happen to higher-value transactions. Tuesday’s announcement clarifies the matter and allays concerns that the charges would come out of consumers’ pockets.
The revised framework keeps 95% of low-value UPI transactions, those below Rs 2,000, as well as small merchant transactions completely free, the NPCI assured. The new “reasonable charge”, it stressed, will support UPI expansion to new users and merchants, investments into resiliency, cybersecurity and innovation.
Besides consumers, the framework also protects small merchants from additional charges by keeping transactions free up to Rs 2,000, the Finance Ministry added. It also clarified that the MDR is neither a tax nor collected by the government, but is distributed among payment ecosystem participants such as banks and apps to support their operations and expansion.
To further accelerate digital payments adoption, the payments body said a dedicated fund for small merchants will be established for digital payment infrastructure in existing merchants and Tier 3 and smaller markets.
