The government has trimmed the free UPI window by introducing a flat levy of Rs 5 on select transactions worth over Rs 2,000. A fee of 0.4% will be levied on merchant payments above Rs 2,000, but the charge will not exceed Rs 300 per transaction, according to the National Payments Corporation of India (NPCI).
Certain merchant categories, such as railways, telecom services, insurance and fuel, will attract a flat MDR of Rs 5 per transaction for UPI payments above Rs 2,000.
With the government introducing a fee on large merchant payments above Rs 2,000, effective from October 15 onwards, here we answer few frequently asked questions explaining who will pay, how much the fee will be, when it will apply and what transactions will be covered.
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Q1. Will small-value UPI transactions be impacted?
Answer: There is no impact on small-value UPI transactions up to Rs 2,000, which comprise more than 95% of the total volume of UPI (P2M) transactions. The intent of levying reasonable MDR is to ensure that UPI remains, accessible and convenient for everyday transactions while supporting long-term ecosystem sustainability.
Q2. Will ordinary consumers be charged for making payments via UPI?
Answer: No, UPI services will continue without any cost to consumers. Consumers can continue to transact free-of-cost using UPI as they have been doing till now. Consumers making payments through UPI will not face any charges. Individual account holders can continue using UPI applications for all routine, daily expenses without worrying about any charges. The MDR policy ensures that UPI remain free and accessible for all citizens across India.
Q3. Are educational institutions exempt from standard MDR percentage fees?
Answer: Educational fee collections, including school tuition, university term fees, and institutional entrance examinations, fall under designated Industry program category. Transactions above Rs 2,000 benefit from flat-fee structures or capped processing rates, preventing high percentage-based fees on large fee amounts. Educational transactions up to Rs 2,000 remain completely free of MDR. This measure ensures schools, colleges, and students can process tuition fees digitally without heavy administrative fees.
Q4. Will government utility bill collections (electricity, water) incur percentage MDR?
Answer: Public utility payments such as electricity distribution, municipal water charges, and piped natural gas fall under designated Industry program category. For utility bill payments exceeding Rs 2,000, a flat concessional MDR of Rs 5 applies, rather than a 0.4% variable rate.
Q5. Does MDR apply to transactions made via Credit Cards linked on UPI or Credit Lines?
Answer: Credit-linked UPI payments, such as RuPay Credit Cards linked to UPI or presanctioned bank credit lines, operate under separate credit product rules. Because creditlinked transactions involve short-term loans funded by issuing banks, they follow standard
credit card guidelines. The MDR discussed in this amendment apply specifically to direct users-account-to-merchant-account UPI transactions
Q6. How does MDR work for fuel purchases at petrol pumps via UPI?
Answer: Fuel purchases made at petrol stations via UPI qualify for the flat concessional rate of Rs 5 for payments over Rs 2,000. The flat Rs 5 fee protects petrol pump operators from high processing fees on tank refills. For all fuel payments under Rs 2,000, the MDR remains at 0%, ensuring everyday commuter refuelling is completely charge-free, while fuel station operators are not subject to any MDR on such transactions.
Q7. What specific MDR rates and caps apply to Capital Market transactions via UPI?
Answer: The Merchant Discount Rate (MDR) for Capital Market transactions, including payments towards Mutual Funds, Securities, Stockbrokers, and Dealers, is set at a nominal 0.02% of the transaction value with a maximum capping of Rs 300. The fee is lower than standard commercial transaction rates to encourage retail participation in formal financial
markets.
Q8. Is there any charge for UPI's Person-to-Person (P2P) transactions like sending money to friends, family, or personal contacts?
Answer: No, P2P transactions will continue to be free-of-cost for both payer as well as beneficiary. There will be no charges for any person transferring or receiving any amount to or from any other person (or even self-transfers) using UPI. Whether you are transferring money to a family member, splitting a bill with friends, or performing self-transfers across your own linked bank accounts, zero charges apply. Citizens can freely make transfers on UPI of any permitted amount without incurring any transaction fees.
Q9. Will UPI Apps start charging platform fee on UPI payments?
Answer: No, UPI App providers shall NOT charge Platform Fee or any other charge for any payment made through UPI. UPI applications are explicitly restricted from levying platform fees on UPI transactions.
Q10. Are insurance premium payments eligible for special MDR concessions?
Answer: Yes, insurance premium payments accepted via UPI qualify for specialised flat-rate concessions. For insurance premium payments exceeding Rs 2,000, a flat MDR of Rs 5 per transaction applies, rather than a percentage-based charge. This concessional model ensures that policyholders making high-value annual or semi-annual insurance payments do not face heavy backend fee friction. Insurance companies benefit from low-cost digital collections, helping expand insurance coverage across India.
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