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From October 15, some merchants will pay a fee on UPI payments above about ₹2,000, known as a merchant discount rate (MDR). Customers will not pay any fee. Here is how it works:
Part I: Customers
Does a customer pay a fee when using UPI?
No. The fee, or MDR, is paid by the merchant, not the customer. Customers pay the listed price whether they use UPI, cash or a card.
Will I be charged if I send money to family, friends or colleagues?
No. These transactions do not attract any fee, regardless of the amount sent within UPI limits. They are categorised as person-to-person (P2P) transactions.
I use UPI Autopay for OTT subscriptions, systematic investment plans and utility payments. Do I pay anything?
No. Customers do not pay a fee for using UPI. Recurring payments through UPI Autopay do not carry any prescribed MDR for either the customer or the merchant.
Part II: Merchants receiving less than ₹1 lakh a month
Who are small vendors or micro merchants?
The person-to-person-merchant (P2PM) category covers micro merchants and small vendors. These merchants receive up to ₹1 lakh in a month directly into their own bank accounts through UPI QR codes. They include informal street vendors as well as formal commercial merchants.
Such businesses do not pay any fee or MDR for accepting UPI payments, regardless of the transaction value.
A small vendor collecting less than ₹1 lakh a month through UPI receives some payments above ₹2,000. Does he/she pay a fee on those transactions?
No. According to NPCI, even if a small vendor categorised as P2PM receives a UPI payment above ₹2,000, it does not have to pay a charge.
What happens if the same small vendor’s monthly revenue via UPI payments exceeds ₹1 lakh? Will he/she have to pay MDR?
If a small vendor receives more than ₹1 lakh through UPI payments for three consecutive months, it is transitioned to the person-to-merchant (P2M) category.
MDR will apply only when the merchant is formally classified as P2M by its acquiring bank or payment service provider.
Part III: UPI MDR -- actual fees and limits for large merchants receiving more than ₹1 lakh a month
Who pays MDR, when and how much?
Businesses categorised as P2M pay a fee of 0.4 per cent on UPI transactions above ₹2,000. There is no MDR on UPI transactions of ₹2,000 or less. For UPI payments of ₹75,000 or more, the fee is capped at ₹300 per transaction.
What does MDR on UPI payments look like?
Consider a kirana store classified as P2M that receives UPI payments of varying values during a day.
Case 1: A customer pays ₹1,500 through UPI. As the payment is not above ₹2,000, the store pays no MDR.
Case 2: A second customer buys supplies worth ₹10,000. As the payment exceeds ₹2,000, an MDR of 0.40 per cent applies. The store pays ₹40, plus goods and services tax (GST) on the MDR, to the bank that enables it to accept UPI payments.
Case 3: A third customer makes a purchase worth ₹1 lakh. At 0.40 per cent, the fee would be ₹400, but it is capped at ₹300 for payments of ₹75,000 and above. The store therefore pays ₹300 plus GST.
In none of these cases does the customer pay anything extra.
Does a business pay a fee on UPI payments of less than ₹2,000?
No. MDR applies only to transactions above ₹2,000. Businesses do not pay a fee on individual payments of ₹2,000 or less.
Is ₹2,000 an MDR threshold per transaction or a daily inward limit for merchants?
According to NPCI, ₹2,000 is the per-transaction threshold for MDR, not a daily limit. There is no cap on cumulative or repeat transactions below ₹2,000.
Which categories attract a flat ₹5 fee on UPI payments above ₹2,000?
For specific merchant categories, including railways, telecom services, insurance, fuel, bill payments and education, among others, a flat MDR of ₹5 per transaction applies to payments above ₹2,000. Merchants bear this cost for processing a UPI transaction.
How does UPI MDR differ from fees on debit and credit cards?
Standard credit card MDRs typically range from 1.5 per cent to 2.5 per cent per transaction, while debit card MDRs are capped at up to 0.90 per cent.
UPI’s MDR is 0.4 per cent on P2M payments above ₹2,000, with a cap of ₹300.
