Govt sets 0.4% fee on UPI payments above ₹2,000; check what's exempt

The government on Tuesday announced a revised framework for merchant discount rate (MDR) on select high-value UPI transactions, while keeping person-to-person payments and most small-value merchant transactions free.

Under the new framework, a 0.4% MDR will apply to specified person-to-merchant (P2M) UPI transactions above ₹2,000, with the charge capped at ₹300 per transaction.

"MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments," the finance ministry said in a statement.

A flat MDR of ₹5 per transaction will apply to payments above ₹2,000 in specified sectors, including railways, telecommunications, insurance and fuel.

Payments relating to mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, capped at ₹300 per transaction, the ministry said.

The revised framework does not cover person-to-person (P2P) transactions, which will continue to remain free irrespective of the amount transferred.

P2M transactions of up to ₹2,000 will also remain outside the MDR framework.

Small merchants receiving up to ₹1 lakh a month through UPI QR payments under the person-to-person-merchant (P2PM) category will continue to pay zero MDR.

The government said the new framework would affect only about 4% of merchant transactions, leaving around 96% of P2M transactions unaffected.

It also provides for a dedicated fund for small merchants, with an amount equivalent to 5% of total MDR collections to be contributed to it. The fund will be used to support digital payment infrastructure and UPI acceptance among small merchants, including in smaller markets.

The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee, the finance ministry said.

The ministry said banks have been advised to ensure that merchants do not pass the MDR on to customers, while UPI application providers have been prohibited from imposing platform fees or hidden charges on UPI transactions.

The government said revenue from the MDR on larger transactions would be distributed among participants in the UPI ecosystem and support investment in payment infrastructure, resilience, cybersecurity and innovation.

The revised framework will come into effect on October 15, 2026.