UPI will charge merchants 0.4% on payments above ₹2,000 from 15 October

From 15 October, most Indian merchants will pay a 0.4 per cent merchant discount rate on Unified Payments Interface transfers they receive above ₹2,000. The National Payments Corporation of India published the rules on 15 September. The fee is capped at ₹300 once a payment reaches ₹75,000. A ₹5,000 sale therefore costs the merchant ₹20. A ₹50,000 sale costs ₹200. A ₹1 lakh sale still costs ₹300. NPCI has told banks and merchants they may not pass the charge to the customer.

Person-to-person transfers remain free. Payments of ₹2,000 or less to merchants remain free. Small sellers who collect up to ₹1 lakh a month on UPI QR codes remain free. QR payments in rural and semi-urban areas remain free. Officials say those carve-outs leave about 96 per cent of person-to-merchant transactions untouched. NPCI says payments up to ₹2,000 already make up more than 95 per cent of merchant volume.

Some sectors get a different tariff. Railways, telecom, fuel, insurance and specified agricultural inputs pay a flat ₹5 on each transaction above ₹2,000. Mutual-fund and stockbroking payments pay 0.02 per cent, also capped at ₹300. Five per cent of MDR collections is supposed to go into a fund to widen UPI use among small merchants.

The finance ministry says the money is not a tax. It does not go to the government or to NPCI as a levy. It is meant to be split among banks and payment firms that have run UPI at a loss since the zero-MDR period began about six years ago. At 0.4 per cent the new rate sits well below typical credit-card MDR of 1.5 to 2.5 per cent and below debit-card MDR of up to 0.9 per cent. That comparison is the government’s main defence.

The political fight is already running. Opposition MPs told Parliament the fee would hit ordinary trade and called it a UPI tax. Rahul Gandhi told the prime minister to withdraw it and accused the government of bending to foreign pressure. The government denied any rollback. Retailer groups warned that some small shops would push customers back to cash on tickets just above ₹2,000. A public interest petition in the Supreme Court argued that RuPay debit cards still enjoy a no-charge rule with no ceiling, and that UPI is being treated worse.

UPI’s growth was built on the promise that neither side of the payment paid a fee. Banks accepted that while the system was winning share from cash and cards. The bill for switching, fraud controls and uptime grew with the volume. The October schedule is the first attempt to put a price on the slice of traffic that looks most like card-acquiring: larger tickets at organised merchants and e-commerce. Whether merchants absorb ₹20 on a ₹5,000 bill or raise prices by that amount is the test NPCI cannot write into a circular. The circular only says they must not add a line on the customer receipt.

If the 96 per cent figure holds, most Indians will not see a new charge on chai, autos or kirana bills. They will see it, if at all, on restaurant bills, electronics and online checkouts above ₹2,000. That is a narrower shock than the phrase “UPI tax” suggests. It is still the end of the pure zero-MDR era that made UPI the default rail in Indian shops.