Govt sets 0.4% fee on UPI merchant payments above Rs 2,000; caps charge at Rs 300
The move ends the zero-MDR regime that has been in place since January 2020, introduced to drive digital payments adoption but long criticised by banks and fintechs as unsustainable.
The government has imposed a 0.4% fee on UPI merchant payments exceeding Rs 2,000, with a maximum charge of Rs 300 for transactions of Rs 75,000 or more. This change marks the end of the zero-MDR regime introduced in January 2020, which aimed to promote digital payments adoption but faced criticism from banks and fintechs for being unsustainable.
Certain essential sectors, including railways, telecom, and fuel, will continue to incur a flat Rs 5 fee per transaction, while the capital markets face a lighter 0.02% rate. Small merchants earning up to Rs 1 lakh monthly through UPI QR codes are exempt from this new charge, with the government stating that this exemption shields 96% of merchant transactions from any additional cost.
The MDR on person-to-merchant UPI transactions above Rs 2,000 has been capped at Rs 300 for payments of Rs 75,000 and above. Person-to-person transfers, which constitute 37% of UPI's volume and 70% of its value, remain unaffected. App providers are prohibited from adding platform fees, and banks have been instructed not to allow merchants to pass on the MDR costs to customers.
Lastly, a fifth of the new fee pool will be allocated towards the expansion of UPI services for small merchants.
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