The finance ministry notified amendments to the Payment and Settlement Systems Act on September 14, barring banks and system providers from charging any fee on UPI transactions and RuPay debit card payments up to ₹2,000. Payments above that threshold are now open to merchant discount rate (MDR) charges for the first time since 2020.

The notification operationalizes changes Parliament passed last month to Section 10A of the 2007 Act, which had barred all MDR on UPI without exception. The amended law hands that decision to the finance ministry, which has now drawn the free line at ₹2,000. The UPI and Services Steering Committee, chaired by the National Payments Corporation of India, will design the MDR framework and rate schedule for payments above the threshold.

The rate itself is unsettled. Inc42 cites industry sources expecting a charge near 40 basis points (0.4% of transaction value), with issuing banks taking about 40% of that fee and third-party apps such as PhonePe and Paytm splitting the rest with acquiring banks. Business Standard reports market expectations of a 25 to 40 basis point slab. Inc42 and Business Standard disagree on the precise figure, and NPCI has not published a final number.

P2P Transfers Stay Untouched

The change follows pressure from banks over margin compression as UPI volumes climbed since the zero-MDR regime began in 2020. Business Today reported Finance Minister Nirmala Sitharaman’s earlier assurance that any MDR would apply only to select merchant transactions, not peer-to-peer transfers, and at rates well below card charges. IANS corroborated that all P2P UPI transactions remain free under the new framework: the eventual fee falls solely on merchant-facing flows above ₹2,000.

Sources

  • Inc42: reported the gazette notification, the 40 basis point rate expectation and the bank/app fee split
  • Business Standard: reported the 25-40 basis point market expectation
  • Business Today: reported Sitharaman’s earlier assurance on merchant-only MDR
  • IANS: corroborated that P2P UPI transfers remain free

Reporting compiled and contextualised by TechScoop India. Figures reconciled across the sources above.

Originally reported by Inc42.