New Delhi: The government on Tuesday amended the Payment and Settlement Systems (PSS) Act, 2007, introducing changes aimed at maintaining affordability and improving transparency in digital payments.
Under the revised framework, UPI transactions of up to Rs 2,000 will continue to attract zero Merchant Discount Rate (MDR). However, a nominal MDR of 0.4 per cent will apply to Person-to-Merchant (P2M) transactions exceeding Rs 2,000.
MDR to Be Shared Among Payment Ecosystem Partners
According to a Ministry of Finance statement, the 0.4 per cent MDR will be distributed among payment ecosystem participants, including banks and app providers.
For high-value transactions of Rs 75,000 and above, the MDR will be capped at Rs 300 per transaction.
The government has also introduced a flat MDR of Rs 5 for transactions above Rs 2,000 in sectors such as railways, telecom, insurance, fuel and agriculture inputs. The ministry said the fixed-rate structure is intended to provide cost stability for critical public services and industries operating on thin margins.
These Industry Program categories account for nearly 17 per cent of UPI P2M transaction volume and around 46 per cent of the total value of UPI merchant transactions.
UPI Apps Cannot Charge Platform or Hidden Fees
The Ministry of Finance said UPI app providers will not be permitted to impose platform fees or hidden charges on users.
Banks have also been advised to ensure that merchants do not transfer MDR costs to customers for UPI payments.
The government clarified that individuals will continue to have unlimited access to free UPI transactions, with no monthly quota or transaction-volume ceiling.
It also said that daily transaction limits imposed by banks and NPCI, ranging from Rs 1 lakh to Rs 5 lakh depending on the category, are risk-management measures and should not be treated as commercial charging tiers.
Around 96% of Merchant Transactions to Remain Unaffected
The ministry said data analysis shows that the revised MDR will apply to only about 4 per cent of merchant transactions.
As a result, approximately 96 per cent of merchant transactions will remain outside the charge, either because their value is below Rs 2,000 or because they fall under the zero-MDR framework applicable to small merchants.
The government said the framework is designed to protect individuals, micro-enterprises and small businesses while introducing a limited charge for higher-value merchant transactions.
New Framework Aims to Make UPI Self-Sustainable
According to the ministry, the revised MDR structure is intended to make the UPI ecosystem more self-sustainable while encouraging further expansion in rural and semi-urban markets.
The framework will also seek to maintain UPI’s competitiveness while ensuring that most digital payments continue to remain free of charge.