India to impose 0.4% fee on UPI merchant payments above Rs2,000
Payments between individuals will remain free, while small merchants receiving up to Rs1 lakh a month through UPI QR codes will continue to pay no fee.
India will introduce a 0.4% fee on payments above Rs2,000 made to merchants through its real-time digital payments system - Unified Payments Interface (UPI) - from 15 October, according to the National Payments Corporation of India (NPCI).
In a statement issued this evening (15 September), the Indian finance ministry said UPI payments between individuals would remain free, irrespective of the transaction value.
There will also be no monthly quotas, volume limits or tiered caps on free UPI transactions between individuals, the ministry said.
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The new 0.4% charge, known as the Merchant Discount Rate (MDR), will apply only when a person makes a UPI payment to a merchant above Rs2,000.
The fee will be capped at Rs300 for transactions of Rs75,000 and above, according to the statement.
The MDR will be shared among payment ecosystem partners, including banks and UPI app providers.
However, some sectors will have a different fee structure. Railways, telecom, insurance, fuel and agricultural inputs will pay a flat Rs5 per transaction above Rs2,000.
Payments involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%, capped at Rs300, the statement said. The reduced rate is intended to encourage retail participation in formal financial markets.
Small merchants receiving up to Rs1 lakh a month through UPI QR codes under the Person-to-Person-Merchant (P2PM) classification will continue to pay no MDR on their transactions.
UPI app providers will also be prohibited from imposing platform fees or hidden charges.
Banks have been advised to ensure that merchants do not pass the MDR on to customers making UPI payments.
The government said the majority of UPI merchant transactions would remain unaffected because they fall below the Rs2,000 threshold.
According to data cited by the finance ministry, only 4% of merchant transactions are expected to be affected by the new charge.
The Indian government has also amended the Payment and Settlement Systems (PSS) Act of 2007 to specify electronic payment modes on which no charges can be imposed.
NPCI announced the new charges through a circular today following deliberations by the UPI steering committee on operational parameters, fee distribution models and category caps.
Person-to-person transactions currently account for 37% of total UPI transaction volume and 70% in value terms, according to the Indian finance ministry.
UPI recorded 24 billion transactions worth $311 billion in August, making it one of the world's largest digital payments systems by transaction volume.
The new fee structure is expected to benefit banks and payment firms while keeping costs stable for critical public services and industries with thin profit margins, the ministry said.
