UPI Charges Above Rs 2,000? What The New Law Means For Users

UPI payments may see merchant charges after Parliament cleared a legal change allowing MDR on certain digital transactions. One proposal is a 0.3%-0.5% fee on UPI payments above Rs 2,000 made to large merchants, though no final rate has been decided.

UPI payments may not stay completely free for merchants

For millions of Indians, paying through UPI has become as normal as using cash or a card. Parliament has cleared a legal change that could allow merchant discount rate (MDR) charges on certain digital payments, including UPI. The change does not mean that UPI users will suddenly be charged for every payment. It creates the legal route for such charges to be introduced later, according to a report by Reuters.

The government has not yet announced a final UPI fee rate or confirmed exactly when any charge would begin.

What is the proposed UPI fee?

One proposal being considered is an MDR of between 0.3% and 0.5% on UPI transactions above Rs 2,000. The proposal would focus on merchants with annual turnover of more than Rs 1.5 crore.

Another option under discussion is to link the charge to a merchant's yearly turnover rather than the value of each individual payment. A cap on the maximum fee could also be considered.

This means the Rs 2,000 figure should not currently be treated as a confirmed threshold. It is part of a fee model being considered.

Who would actually pay the charge?

The proposed MDR would be a merchant charge. It would be paid to banks and payment service providers for processing the digital payment.

So, if you scan a QR code to pay a large shop or business, the proposal does not mean that your UPI app would automatically deduct an extra amount from your account.

Finance Minister Nirmala Sitharaman has also said the proposed MDR would affect businesses rather than ordinary users.

Smaller shops and businesses are expected to be less affected under the model currently being discussed.

Why is the government considering MDR?

UPI has grown at a huge pace while remaining largely free for merchants. Payment companies and banks have argued that the zero-MDR model makes it harder to earn enough from transactions to support the cost of running and improving the system.

The proposed change is aimed at giving payment companies a possible source of revenue while supporting the wider digital payments system. Reuters reported that the current proposals are intended to help make the UPI ecosystem more sustainable.

Will ordinary UPI users have to pay?

Not at this stage.

If you use UPI to send money to another person or pay a small shop, there is currently no announced new customer fee because of this law change.

Even if MDR is introduced, the proposal is aimed at merchants. Businesses may choose to absorb the cost, although there is also a possibility that some could try to recover it through their prices.

The key point is that UPI is not becoming a paid service for everyone overnight. The government has created room for merchant charges, but the final rules, rates and implementation date are still to be decided.