4% merchant discount rate (MDR) on UPI transactions above Rs 2,000, with an overall cap of Rs 300, and a flat Rs 5 charge for utility payments, fuel purchase, insurance premium, rail tickets, and a host of government services. Despite MDR kicking in from October 15, person-to-person payments, such as UPI transfers to friends, will be exempt; auto-debits and UPI mandates will not attract charges either.

“Banks have been advised to ensure merchants do not pass MDR charges on to customers. UPI application providers are expressly prohibited from imposing platform fees or hidden charges,” the finance ministry said in a statement.

In any case, the charge has to be borne by the merchant, and a large number — large retailers, online platforms, restaurants — may absorb the cost. After all, cash handling too comes with a cost, as several banks charge a deposit fee.'

02% with an overall cap of Rs 300. NPCI said that more than 95% of the volume of merchant transactions — which are below Rs 2,000 — will not see any impact.

Charges unpacked“UPI MDR is structured to be much lower than all traditional card-based transaction fees. 9%.

4% on transactions above Rs 2,000 and capping it at Rs 300 for high-value purchases, UPI remains the most affordable digital payment acceptance tool for commercial enterprises. This cost difference helps merchants lower their payment processing expenses while accepting digital transactions,” NPCI said.

In a statement, the finance ministry said MDR is neither a tax nor a charge collected by the government or NPCI. “It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.”

“A fair and appropriate distribution of MDR across ecosystem participants will support continued investment in tech, infrastructure and acceptance networks. This, in turn, can enable wider UPI acceptance, deepen the customer base and support sustained growth in transaction volumes,” RBI stated.

28% interchange, which is to be paid by the acquiring bank to the issuer, with the remaining fee to be paid by the issuer to the payment service provider (PSP). 8% to the app provider from its share of MDR, NPCI said.

It also announced a dedicated fund to support small merchants, for which 5% of the MDR collection will be earmarked.