New Merchant Discount Rate (MDR) charges are set to take effect for specific Unified Payments Interface (UPI) transactions from October 15. The new framework primarily impacts merchants receiving payments above ₹2,000, with different rates applied based on the transaction type and sector.
Understanding the New UPI MDR Rules
The Merchant Discount Rate (MDR) is a fee paid by merchants to banks for processing transactions. While Person-to-Person (P2P) UPI transfers and consumer-initiated payments remain free, the new rules introduce MDR for certain Person-to-Merchant (P2M) transactions.
Standard P2M Transactions Over ₹2,000
- For most regular P2M transactions exceeding ₹2,000, merchants will be charged a 0.4% MDR.
- This charge is capped at ₹300 for transactions of ₹75,000 and above. For example, a ₹3,000 payment would incur a ₹12 charge, while a ₹50,000 payment would be ₹200. A ₹1 lakh transaction, which would typically be ₹400, will be capped at ₹300.
- Transactions up to ₹2,000 will continue to have zero MDR, even for large commercial merchants.
Exemptions for Small Merchants
Small vendors operating under the Person-to-Person-Merchant (P2PM) framework will remain exempt from MDR. This category includes small merchants who receive up to ₹1 lakh per month via UPI QR codes. Importantly, a small merchant's exemption is based on their overall account categorization, not on individual transaction amounts exceeding ₹2,000.
Concessional Rates for Key Sectors
Certain essential services and sectors will benefit from a concessional flat MDR of ₹5 for transactions above ₹2,000, instead of the standard 0.4% rate. These sectors include:
- Railways (e.g., ticket purchases)
- Telecom services
- Insurance premiums
- Fuel purchases
- Utility bill payments (electricity, water, piped natural gas)
For instance, an insurance premium or fuel purchase exceeding ₹2,000 will incur a flat ₹5 charge. Payments below this threshold in these categories remain free.
Capital Market Transactions
Payments related to capital markets have a distinct MDR structure. Transactions involving mutual funds, securities dealers, stockbrokers, and investment platforms will attract a 0.02% MDR on the transaction value, capped at a maximum of ₹300. This covers a range of activities, including equity purchases, debt market investments, mutual fund payments, and broker wallet top-ups.
No Direct Charges for Consumers or P2P Transfers
It is crucial to note that consumers will not be charged directly for making UPI payments. Person-to-person transfers, such as sending money to family or friends, or between a user's own accounts, will also remain free, regardless of the amount. UPI applications are prohibited from imposing platform fees on these payments. Merchants are also not permitted to pass on the MDR to buyers; consumers will continue to pay the listed price for goods and services.
Credit-Linked UPI Payments
UPI payments linked to credit, such as those made using RuPay credit cards or pre-sanctioned bank credit lines, operate under separate credit-product rules and are not subject to this specific direct account-to-merchant UPI MDR framework.