New Delhi: Indian banks will keep a close watch on merchants to ensure that the Merchant Discount Rate (MDR) applicable to certain UPI transactions is not passed on to customers.
The Finance Ministry is scheduled to hold discussions with the Indian Banks’ Association (IBA) and the Confederation of All India Traders (CAIT) on the MDR issue. According to a report by news agency ANI, the IBA will develop a mechanism to ensure that merchants do not recover the MDR amount from consumers making UPI payments.
What Is the New UPI MDR Structure?
From October 15, a 0.4% MDR will apply to person-to-merchant (P2M) UPI transactions above ₹2,000. The charge will be paid by merchants rather than customers and will be capped at ₹300 for transactions worth ₹75,000 or more.
Person-to-person payments and most routine merchant transactions will continue to remain free.
Certain essential sectors, including railways, telecom, fuel and insurance, will have a special flat MDR of ₹5 per transaction for payments above ₹2,000.
Transactions involving capital markets, including mutual funds and stockbroking, will attract a lower MDR of 0.02%, subject to a maximum charge of ₹300 per transaction.
Small Merchants to Remain Exempt
Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to receive mandatory zero MDR on their transactions.
Officials said this exemption is expected to cover around 96% of all merchant transactions.
The special ₹5 MDR applicable to essential sectors covers areas such as railways, telecom, insurance, fuel and agricultural inputs. These sectors account for nearly 17% of UPI P2M transactions by volume and around 46% by value.
No Hidden Fees or Monthly Limits for Free UPI Payments
Payments connected with mutual funds, securities, stockbrokers and dealers will be subject to the 0.02% MDR, with the charge capped at ₹300 per transaction.
UPI application providers will not be permitted to introduce platform fees or hidden charges. Banks have also been advised to ensure that merchants do not transfer the MDR cost to customers by adding it to their UPI payment amounts.
For individual users, there will be no monthly quota, transaction-volume limit or tiered cap on free UPI transactions.
Disclaimer
The information in this article is based on the details available in the source material and is intended for general informational purposes. UPI charges, MDR rules and related banking guidelines may be subject to applicable regulations and updates. Readers should verify the latest terms and official announcements before relying on this information for financial or business decisions.