New Delhi — In a significant shift in India's digital payments landscape, the Finance Ministry on Monday issued an official notification introducing a 0.4% merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions that exceed ₹2,000, effective October 15. The maximum fee charged on any single transaction will be capped at ₹300, with the actual deduction scaling proportionally depending on the transaction value.
Under the new framework, consumers making UPI payments of ₹2,000 or less will continue to enjoy completely free transactions — neither they nor their merchants will be charged any fee. The MDR will be borne exclusively by the merchants and their acquiring banks, not by the paying customers.
Notably, the notification also extended the zero-MDR benefit for transactions up to ₹2,000 to payments made using RuPay debit cards, bringing them in line with the UPI exemption. This means small-value retail purchases via RuPay debit cards will remain commission-free for merchants as well.
The policy reversal ends a nearly four-year period during which the government waived all MDR charges on UPI transactions to encourage cashless payments and digital inclusion across the country. To sustain the free UPI ecosystem, the Finance Ministry has reportedly spent approximately ₹8,276 crore over the past four years, subsidizing the interchange and settlement costs that payment service providers would otherwise have borne.
Industry analysts suggest the new fee structure aims to strike a balance between sustaining UPI's explosive growth and ensuring the long-term financial viability of the payment ecosystem. Merchant groups had been pushing for some form of cost recovery mechanism, arguing that the zero-MDR regime placed a disproportionate burden on small traders and banking institutions.
Payments unions and digital transaction platforms are expected to adjust their systems to implement the new tiered MDR structure ahead of the October 15 deadline. Consumers are unlikely to see any direct impact on their end, as the charge is applied at the merchant level.
