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UPI Transaction Charges: Essential for Sustained Growth

When UPI (Unified Payments Interface) was first introduced for digital transactions, a Merchant Discount Rate (MDR) fee was applicable. This fee was subsequently waived (set to zero) to encourage the adoption of digital transactions.

UPI Transaction Charges: Essential for Sustained Growth

What are the new rules for UPI transaction charges?

As UPI usage continues to grow daily, banks and payment service providers incur significant costs in handling transactions and maintaining the necessary technical infrastructure, including servers.

Consequently, the Central Government has decided to reintroduce the Merchant Discount Rate (MDR) for UPI transactions. Under this new policy, a charge of 0.4% will be levied on commercial transactions exceeding ₹2,000, effective from October 15. Additionally, the maximum charge for transactions of ₹75,000 and above has been capped at ₹300.

This charge applies specifically to money transfers from individuals to merchants. However, for certain categories of transactions—such as railway tickets, fuel, agricultural inputs, credit card bill payments, telecommunications services, utility bills, insurance premiums, and tax payments—a flat fee of ₹5 per transaction will be charged to merchants.

Furthermore, the Union Ministry of Finance has clarified that small merchants conducting transactions of up to ₹1 lakh per month via UPI QR codes are exempt from this charging structure; consequently, 96% of transactions will remain unaffected. Digital financial transactions take place in the tens of millions annually. In the 2025-26 fiscal year alone, over 24,000 crore UPI transactions occurred, amounting to a value of ₹314 lakh crore. A new system has been introduced because it is essential for the banks and payment service providers facilitating these transactions to implement a Merchant Discount Rate (MDR).

The Central Government believes that this measure will ensure a steady revenue stream for banks and payment service providers to make investments, while also enabling seamless digital transactions for the general public. Therefore, this decision by the Central Government is welcome.

The fact that there are no charges for money transfers between friends and relatives is also beneficial to the public. However, large merchants might indirectly pass this cost burden on to consumers by raising the prices of goods.

There are concerns that this could be a setback in the journey towards a 'Digital India,' potentially leading the middle class to opt for large cash transactions. Critics also argue that the current announcement contradicts the promises made by the Central Government regarding digital transactions in the early stages.

Nevertheless, if a merchant needs to be paid more than ₹2,000, the payment could be split into two installments of ₹1,000 each. It has also been suggested that large sums be paid via the bank's NEFT facility rather than through UPI.

Thus, the Central Government's decision can be viewed as a change introduced to ensure the journey of growth proceeds smoothly. Furthermore, one can hope that competition among companies involved in UPI services will emerge, ultimately resulting in better service for the public.
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