Fuel Payment, Phone Purchase, Restaurant Bills: UPI Charges Explained

Is the era of free click-and-pay transactions over in India? Yes and no. It depends on who you are and how much money you are sending or receiving. If you are a customer, you pay nothing. It remains absolutely free. There is no exception.

If you are a merchant, you pay a nominal 0.4% charge on receiving above Rs 2,000 in one go, with an upper limit of Rs 300. The charge is fixed at Rs 5 on some transactions like railway ticket booking and fuel payments.

If you are sending money to a friend or any other individual, it remains free.

You are shielded if you are an ordinary customer. Your small transactions at the grocery store or fuel pump will see no change. You pay nothing extra. If the bill is above Rs 2,000, the merchant pays.

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

For some transactions, like paying for railway tickets or refuelling, a flat rate of Rs 5 will be applicable for transactions above Rs 2,000. But again, you pay nothing. The seller does, and they cannot make you pay for it.

These charges are part of what the National Payments Corporation of India (NPCI) calls the Merchant Discount Rate (MDR) framework for the Unified Payments Interface (UPI). It will become effective from October 15.

The government says the money will go to banks and app providers to sustain operations and help expansion.

What Remains Free

• All person-to-person UPI transactions irrespective of transaction value: The Finance Ministry clarifies that all transactions between individuals will remain "completely free", no matter how much money is being sent or received. This accounts for 70% of the total transaction value. No transaction or platform fee, or other charge may be imposed on individuals for sending or receiving money through UPI, the ministry notes.
• Merchant Payments Up To Rs 2,000: No charge is involved for payments up to Rs 2,000 made by customers to merchants. So if your bill is Rs 1,000 at your local grocery shop, no charge is involved anywhere. Customers will not pay any charge for such transactions, authorities have clarified.
• Payments To Small Merchants: This is a big relief for small merchants, local shops, and street vendors who often transact in smaller values. They need not pay anything for receiving up to Rs 1 lakh per month.

Where Charges Are Levied

• Merchant Transactions Above Rs 2,000: Here's where charges emerge. If you make a payment above Rs 2,000 at an outlet, a nominal 0.4% MDR will be levied. Such charges will be capped at Rs 300. The merchant must pay this. The government has advised the banks to ensure these charges are not passed on to customers.
• Transaction In Essential Sectors: A flat rate of Rs 5 will be levied on transactions above Rs 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel, and agricultural inputs.
• Capital Markets Transaction: If you are paying towards mutual funds, securities, stockbrokers, and dealers, such transactions will attract an MDR of 0.02%. This, too, is capped at Rs 300 per transaction.

Who Receives This Charge?

The government doesn't collect this charge. Neither does the NPCI. This is not a tax. So who does it go to? This will be distributed among the payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem, the ministry says.

In A Nutshell: Case Studies

Let's take four case studies to understand the impact of the new UPI charges.

Case 1: You get your car's fuel tank filled. The bill shows Rs 5,000. What charge do you pay? Nothing, unless you run the petrol pump. A flat rate of Rs 5 is applicable in this case. The fuel company or the petrol pump operator pays that. As a customer, you pay only for the fuel and get going.

Case 2: You dine at a restaurant, and the bill is Rs 6,000. Again, you pay Rs 6,000, and that's it. You don't pay the applicable charge. At 0.4%, the MDR will be Rs 24. The restaurant pays that.

Case 3: You buy a mobile phone that costs Rs 30,000. You pay that exact amount. The MDR is calculated at 120, based on a Rs 0.4% rate. The seller pays this amount. Not you.

Case 4: A friend asks you to transfer Rs 10,000 for an emergency. Will you pay the MDR or your friend who receives the money online? Neither. This counts as a person-to-person transaction, covered under the zero-MDR framework.

Can Merchants Make You Pay?

Now arises the concern: what if the merchants try to pass on the charge to you? You may have already faced that while using credit cards to pay at merchant outlets. Boards are often put up outside shops stating that a 1-2% charge will be applicable if you pay using cards.

The government says this cannot be done while paying using UPI.

"Banks have been advised to ensure that 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 states.

In short, individuals will have unlimited free usage. There is no monthly quota, volume restrictions, or tiered caps on free UPI transactions.

While there are daily transaction limits prescribed by banks and NPCI, which generally range from Rs 1 lakh to 5 lakh depending on the transaction category, the government states these are security and risk-management safeguards and not charging thresholds. The transaction limits are not linked to charges.

Customers, Small Vendors Protected

The government argues that the Rs 2,000 threshold will keep 96% of all person-to-merchant transactions free. Data suggests that only the remaining 4% of merchant transactions will face the charges. Therefore, this framework will protect individuals, micro-enterprises, and small businesses, according to the government.

Besides, a dedicated fund will also be established to promote UPI adoption among small merchants, with an amount equivalent to 5% of the total MDR collections contributed to this fund. The government suggests this fund will support wider UPI acceptance, sustained usage, and the inclusion of small businesses in India's digital payments ecosystem.

Why Are Some UPI Transactions Being Charged?

The MDR framework has been introduced under the Payment and Settlement Systems Act, 2007.

The government says that it will strengthen the long-term sustainability of UPI while keeping payments free for individuals and protecting small businesses.

Larger merchant transactions will pay for it, and the revenue generated will go to banks, payment service providers, and UPI app providers. This will help them expand their services and improve infrastructure in the rural and semi-urban areas.