The new UPI framework has kicked in, bringing changes to how certain merchant transactions are charged. But while the framework introduces a 0.4% merchant discount rate (MDR) on specified merchant transactions above ₹2,000, customers will not be charged MDR, according to the government.
UPI payments between individuals will continue to remain completely free, irrespective of the amount. ₹2,000 will also remain”>Merchant payments up to ₹2,000 will also remain free, while around 96 per cent of all merchant transactions are expected to remain unaffected. The changes primarily concern larger merchant transactions and certain specified sectors.
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So, what happens when you scan a QR code to pay for fuel, renew an insurance policy or book a railway ticket? Here are some key questions answered:
Will customers have to pay the 0.4% MDR?
No. MDR is a charge within the merchant payment ecosystem and is not a fee charged to customers making UPI payments. Banks have been advised to ensure merchants do not pass the MDR on to customers, while UPI apps are prohibited from imposing platform fees or hidden charges.
A government press release listing the FAQs has stated that the 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 press release stated.
Will UPI payments for railway tickets get more expensive?
Railway transactions above ₹2,000 fall under the specified categories eligible for a flat ₹5 MDR, rather than the standard 0.4 per cent rate. The charge applies within the payment ecosystem and is not meant to be passed on to the customer.
What happens when you pay for fuel using UPI?
Fuel payments above ₹2,000 will also attract a flat ₹5 MDR instead of the 0.4 per cent rate. Fuel payments up to ₹2,000 will remain zero-MDR. The framework therefore uses a fixed charge for higher-value fuel transactions rather than a percentage that rises with the transaction amount. These charges are also not supposed to be passed on to the customer.
What if you renew your insurance policy through UPI?
Insurance premium payments above ₹2,000 will attract a flat ₹5 MDR rather than the 0.4 per cent rate. This MDR is applicable within the merchant payment ecosystem and does not mean the policyholder has to pay an additional ₹5.
Will electricity or water bill payments attract 0.4% MDR?
No, for utility payments above ₹2,000 covered under the designated category, the framework provides for a flat ₹5 MDR rather than the 0.4 percentage rate. Payments up to ₹2,000 remain zero-MDR.
What about school or college fee payments?
Educational fee collections above ₹2,000 fall under designated categories with flat-fee structures or capped processing rates, rather than necessarily attracting the standard 0.4 per cent rate. Educational transactions up to ₹2,000 remain free of MDR.
“Educational fee collections, including school tuition, university term fees, and institutional entrance examinations, fall under designated Industry program category. Transactions above ₹2,000 benefit from flat-fee structures or capped processing rates, preventing high percentage-based fees on large fee amounts. Educational transactions up to ₹2,000 remain completely free of MDR. This measure ensures schools, colleges, and students can process tuition fees digitally without heavy administrative fees,” according to the government.
So, which UPI transactions remain completely free?
All person-to-person UPI transactions remain free, irrespective of the amount. Person-to-merchant payments up to ₹2,000 also remain free. Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to enjoy zero MDR.
How many merchant UPI transactions will actually be affected?
According to the government, MDR will apply to only about 4 per cent of merchant transactions**, while approximately 96 per cent will remain unaffected.
The central government said the framework has been introduced under the Payment and Settlement Systems Act, 2007, following detailed deliberations by the UPI Steering Committee on the applicable rates, operational arrangements and consumer safeguards.
The framework seeks to strengthen the long-term sustainability of UPI while keeping payments free for individuals and protecting small merchants, the government stated.
Revenue generated from larger merchant transactions is expected to support banks, payment service providers and UPI application providers in expanding and improving payment infrastructure, including in rural and semi-urban areas.
