Govt sets UPI transaction fee of 0.4% for merchant payments above Rs 2000

Person-to-person upi transactions will remain free regardless of the amount. REPRESENTATION PIC/ISTOCK

Ending nearly six years of a fully free Unified Payments Interface (UPI) network for merchants, the government on Tuesday introduced a 0.4 per cent transaction fee on payment above Rs 2000, capped at Rs 300 for payments of Rs 75,000 and above, from October 15, while explicitly ring-fencing everyday person-to-person transfers from any charge.

The carefully calibrated move signals the end of an era for the world's largest real-time payments system even as the government tries to avoid alarming the hundreds of millions of users who use it daily.

Person-to-person (P2P) transfers - which make up 37 per cent of UPI's transaction volume and 70 per cent of its transaction value - will continue to attract zero charges, irrespective of size. Small-value transactions up to Rs 2000, which the government said account for more than 95 per cent of total P2M volume, remain untouched.

"Charges will apply only to person-to-merchant (P2M) transactions exceeding Rs 2000," the finance ministry said in a statement. "A nominal merchant discount rate (MDR) of 0.4 per cent will be levied on P2M transactions above Rs 2000. This commission will be shared amongst the payment ecosystem partners including banks and app providers."

Essential and thin-margin sectors - railways, telecom, insurance, fuel and agricultural inputs - will pay a flat MDR of Rs 5 per transaction above Rs 2000, intended to keep costs predictable for critical services; these categories account for nearly 17 per cent of P2M transaction volume but roughly 46 per cent of P2M transaction value.

The same flat-fee treatment extends to government utility bill collection (electricity, water, piped gas) and educational fee payments such as school tuition and university fees above Rs 2000, both similarly exempted below that threshold.

Payments into mutual funds, securities and through stockbrokers and dealers will attract a lighter 0.02 per cent MDR, capped at Rs 300 - a rate designed to keep the cost of investing low and encourage retail participation in formal financial markets.

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