UPI Charges: Know the Fees on Fuel Payments, Phone Purchases and Restaurant Bills

UPI CHARGES: WHAT CHANGES FROM OCTOBER 15?

India’s popular UPI payment system is set to undergo a change from October 15, but ordinary users will not have to start paying for every transaction.

The new Merchant Discount Rate (MDR) framework introduced by the National Payments Corporation of India (NPCI) applies mainly to merchants receiving higher-value payments. Customers making UPI payments will continue to pay no transaction fee.

In other words, whether you are paying a restaurant bill, buying a mobile phone or filling your vehicle with fuel, the applicable MDR will be borne by the merchant in the transactions covered by the framework.

PERSON-TO-PERSON PAYMENTS STAY FREE

If you transfer money to a friend, relative or any other individual, there will be no MDR, irrespective of the amount involved.

For example, if you send ₹10,000 to a friend, neither the sender nor the recipient will pay a UPI transaction charge.

The Finance Ministry has clarified that person-to-person UPI transactions will remain completely free, with no transaction fee, platform fee or other charge imposed on individuals for sending or receiving money.

PAYMENTS UP TO ₹2,000

Customers paying merchants up to ₹2,000 through UPI will also continue to face no additional charge.

A ₹1,000 grocery bill, for instance, remains a ₹1,000 payment. The customer does not pay anything extra.

Small merchants are also protected under the framework. Merchants receiving up to ₹1 lakh per month will not have to pay the applicable charge.

WHEN WILL MERCHANTS PAY MDR?

The new charge comes into play when a merchant receives more than ₹2,000 in a single transaction.

For such payments, the MDR is set at 0.4%, with a maximum limit of ₹300 per transaction.

The charge is the merchant’s responsibility. It is not supposed to be added to the customer’s bill.

Consider a restaurant bill of ₹6,000. At 0.4%, the MDR would be ₹24. The customer pays ₹6,000, while the restaurant bears the ₹24 charge.

For a ₹30,000 mobile phone purchase, the MDR would work out to ₹120. Again, the customer pays only the purchase price.

₹5 MDR IN SELECTED SECTORS

A flat MDR of ₹5 will apply to transactions above ₹2,000 in certain sectors.

These include railways, telecommunications, insurance, fuel and agricultural inputs.

For example, if your fuel bill is ₹5,000, you pay ₹5,000. The ₹5 MDR is payable by the fuel merchant or service provider.

SPECIAL RATE FOR CAPITAL-MARKET PAYMENTS

Transactions involving mutual funds, securities, stockbrokers and dealers will attract a lower MDR of 0.02%.

This charge will also be capped at ₹300 per transaction.

The MDR is intended to be borne by the relevant merchant or service provider rather than being collected separately from the individual making the payment.

WHO GETS THE MDR?

The MDR is not a government tax.

The government and NPCI will not collect it as a tax. Instead, the money will be distributed among participants in the UPI payment ecosystem, including banks and payment application providers.

According to the government, the revenue will help support the cost of operating UPI and enable continued investment and expansion of the digital-payment infrastructure.

FOUR EXAMPLES TO UNDERSTAND THE NEW RULES

1. Fuel payment of ₹5,000
You pay ₹5,000. A ₹5 MDR applies because the payment is above ₹2,000, but the merchant bears it.

2. Restaurant bill of ₹6,000
The MDR at 0.4% is ₹24. You still pay ₹6,000. The restaurant pays the MDR.

3. Mobile phone worth ₹30,000
The applicable MDR is ₹120. You pay ₹30,000, while the seller bears the charge.

4. ₹10,000 transferred to a friend
No MDR applies. Person-to-person UPI transfers remain free.

CAN MERCHANTS ADD A UPI FEE TO YOUR BILL?

The government has made it clear that MDR should not be passed on to customers.

Banks have been advised to ensure that merchants do not transfer the MDR burden to consumers. UPI application providers are also prohibited from imposing platform fees or hidden charges on individuals under the framework.

So, customers should not be asked to pay an additional amount simply because they chose UPI as their payment method.

NO MONTHLY QUOTA FOR FREE UPI PAYMENTS

The new framework does not create a monthly quota for free UPI transactions.

Existing transaction limits imposed by banks and NPCI will continue to apply, depending on the type of transaction. These limits are designed for security and risk management and are not thresholds beyond which customers start paying a fee.

Depending on the transaction category, daily limits generally range from ₹1 lakh to ₹5 lakh.

MOST MERCHANT TRANSACTIONS EXPECTED TO REMAIN FREE

The government estimates that the ₹2,000 threshold will keep around 96% of person-to-merchant UPI transactions outside the MDR framework. Only about 4% of merchant transactions are expected to attract the charge.

A dedicated fund will also be created to promote UPI adoption among small merchants. The government says an amount equivalent to 5% of MDR collections will be contributed to this fund to encourage wider acceptance and continued use of digital payments.

WHY IS UPI GETTING AN MDR FRAMEWORK?

The framework has been introduced under the Payment and Settlement Systems Act, 2007.

The government’s stated aim is to provide a sustainable revenue model for the UPI ecosystem while ensuring that individuals can continue making UPI payments without transaction charges.

For users, the key takeaway is simple: person-to-person transfers remain free, merchant payments up to ₹2,000 remain free, and even higher-value merchant payments do not carry a separate UPI charge for the customer. The MDR, where applicable, is primarily a cost for the merchant.