UPI Charges To Be 0.4% For Some Payments Above Rs 2,000. Free For Consumers

India's click-and-pay UPI services will attract a fractional charge above Rs 2,000 for merchant payments, the government has notified, though it ruled out charges on person-to-person transactions.

The new UPI Merchant Discount Rate (MDR) framework will be effective from October 15.

The new framework suggests a 0.4% charge will be levied on such transactions made by consumers to merchants, the National Payments Corporation of India (NPCI) has stated in its new rules for Unified Payments Interface (UPI).

This charge is capped at Rs 300 per transaction, one that the Finance Ministry has advised banks to ensure merchants don't pass on to consumers.

For merchant categories like railways, telecom services, insurance, and fuel, the NPCI stated 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 you make a transaction above Rs 2,000 at a merchant, that seller must pay the 0.4% charge. That makes it a minimum of Rs 8 on a transaction of Rs 2,001. But in case you send money to your friend via UPI, it counts as a person-to-person transaction and remains free even if it is above Rs 2,000.

The charges are lower than other digital payment instruments like credit cards, debit cards, and wallets, the NPCI pointed out.

Over the past few weeks, the government had repeatedly asserted that UPI payments would remain free up to Rs 2,000. But it remained a grey area for what happened to higher-value transactions. Today's announcement exactly clarifies that. It allays the fears of the ordinary people who believed the charges would come out of their pockets.

The revised framework keeps 95% of low-value UPI transactions, those below Rs 2,000, and small merchant transactions completely free, the NPCI assured. The new "reasonable charge", it stressed, will ensure UPI expansion to new users and merchants, investments into resiliency, cybersecurity, and innovation.

Besides consumers, it 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 rather distributed among the payment ecosystem participants like banks and apps to support their operations and expansions.

To further accelerate digital payments adoption, the payments body pointed out that a dedicated fund for small merchants will be established for digital payment infrastructure in existing merchants and Tier 3 and smaller markets.