Digital
UPI transactions over Rs 2,000 to carry 0.4 per cent MDR from October 15
New framework keeps P2P payments and 96 per cent of merchant transactions outside the MDR regime
NEW DELHI: UPI merchant transactions above Rs 2,000 will attract a 0.4 per cent merchant discount rate (MDR) from 15 October under a new framework aimed at supporting the long-term sustainability of India’s digital payments ecosystem.
The MDR will apply only to specified person-to-merchant (P2M) transactions above the Rs 2,000 threshold. For transactions of Rs 75,000 and above, the charge will be capped at Rs 300 per transaction.
However, the framework will keep most UPI payments outside the MDR regime. All person-to-person (P2P) transactions will remain completely free, irrespective of the amount transferred. Merchant payments of up to Rs 2,000 will also continue without MDR.
Small merchants receiving up to Rs 1 lakh a month through UPI QR codes under the P2PM category will continue to enjoy zero MDR on all transactions.
The government said MDR will apply to only around 4 per cent of merchant transactions, leaving approximately 96 per cent unaffected.
Transactions above Rs 2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will instead attract a flat MDR of Rs 5 per transaction. Capital market transactions involving mutual funds, securities, stockbrokers and dealers will carry an MDR of 0.02 per cent, capped at Rs 300.
The government clarified that MDR is not a tax or a charge collected by the government or NPCI. It is distributed among payment ecosystem participants, including banks, payment service providers and UPI application providers.
Customers will not be required to pay MDR. Banks have been advised to ensure merchants do not pass the charge on to customers, while UPI application providers will not be allowed to impose platform fees or hidden charges.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee. A dedicated fund will also receive an amount equivalent to 5 per cent of total MDR collections to support UPI adoption among small merchants.
The government said the framework is intended to generate revenue from larger merchant transactions while continuing to protect individuals, micro-enterprises and small businesses.
