UPI MDR to apply above Rs 2,000 from Oct 15, with merchants to bear the fee
Finance Minister Nirmala Sitharaman said the proposed 0.4% MDR on UPI person-to-merchant payments above Rs 2,000 will not be passed on to consumers. Merchants collecting under Rs 1 lakh a month via P2M UPI would be exempt; a potential 18% GST on MDR remains under discussion.
What happened
National Payments Corporation of India (NPCI) · Finance Minister Nirmala Sitharaman said the new UPI MDR will be paid by merchants, not consumers. NPCI’s 0.4%
Key facts
- 0.4% MDR on UPI person-to-merchant transactions above Rs 2,000
- Rs 300 MDR cap for transactions of Rs 75,000 and above
- Transactions up to Rs 2,000 exempt
- Merchants with monthly P2M UPI collections below Rs 1 lakh exempt
- Potential 18% GST on MDR under discussion
Why this matters
Payments, POS and merchant-acquiring platforms may gain an opportunity to bundle MDR optimization, routing and settlement services for larger UPI merchants facing new transaction fees.
What to watch
- Final notification confirming scope, effective date, merchant definition and whether the Rs 2,000 threshold applies per transaction or aggregated value.
- Decision on the proposed 18% GST on MDR and whether input-tax-credit treatment reduces the effective cost for organized retailers.
- Clarification of the Rs 1 lakh monthly exemption: entity-level versus outlet-level calculation, aggregation rules and anti-avoidance provisions.
- Payment aggregator and bank announcements on revised merchant discount rates, rebates and promotional funding.
- UPI transaction mix shifts by ticket size after Oct. 15, especially in electronics, fashion, grocery bulk orders, travel and pharmacy.
- Retailer disclosures of payment-processing expense, gross-margin pressure, tender mix and changes to checkout incentives.
- Regulatory guidance or enforcement actions regarding merchant surcharging or indirect recovery from consumers.
- Model UPI MDR exposure by retailer using the share of P2M UPI transactions above Rs 2,000, rather than total UPI sales.
- Review merchant acquiring contracts for pass-through clauses, volume rebates, interchange-like incentives and GST treatment.
- Prepare tender-steering tests for high-ticket categories, including card/EMI offers, loyalty rewards and bank-funded promotions.
- Track whether competitors raise effective prices, reduce UPI-linked discounts or introduce payment-method-specific offers.
- For marketplace and omnichannel retailers, assess whether seller-funded payment fees can be contractually recovered without weakening seller retention.
- Build a compliance plan against direct consumer surcharging, including clear treatment of convenience fees and discounting.