Government clarifies credit card-linked UPI payments exempt from 0.4% fee

Credit card-linked UPI payments will not come under the new 0.4% Merchant Discount Rate (MDR) regime, the government has clarified, offering relief to consumers who use credit cards or linked credit facilities to make payments through UPI.

The clarification comes ahead of the revised UPI fee structure, which is scheduled to take effect from October 15. Under the new framework, a 0.4% MDR will be applicable to certain direct account-to-merchant-account UPI payments above ₹2,000, with the fee capped at ₹300 per transaction.

UPI payments made through RuPay credit cards linked to UPI

, as well as pre-sanctioned bank credit lines, involve credit extended by the issuing bank. Such transactions consequently continue to be governed by the applicable credit card and credit-product regulations.

The revised MDR regime is specifically aimed at direct user-bank-account-to-merchant-bank-account UPI transactions and does not extend to credit-linked payments.

What are the new UPI charges from October 15?

The revised system changes the treatment of some high-value merchant UPI payments.

For certain transactions above ₹2,000, a flat MDR of ₹5 will apply. Other person-to-merchant (P2M) UPI transactions above the ₹2,000 threshold will attract an MDR of 0.4%.

The 0.4% charge will be subject to a maximum of ₹300 per transaction, thereby limiting the fee applicable to larger-value payments.

Certain categories have been placed under the flat ₹5 charge. These include payments involving railways, telecom services, insurance and fuel when the transaction value exceeds ₹2,000.

Lower MDR for capital-market transactions

A separate, much lower MDR of 0.02% will apply to capital-market-related UPI payments.

This category includes transactions involving mutual funds, securities, stock brokers and dealers. The MDR will also be capped at ₹300 per transaction.

The differentiated rates are intended to account for the varying nature and economics of different merchant payment categories.

Most UPI transactions will remain unaffected

The new framework is expected to have a relatively limited impact on the overall UPI ecosystem because only a small proportion of merchant transactions exceed the relevant threshold.

Around 4% of merchant transactions are expected to come within the scope of the new MDR structure, while more than 95% of UPI person-to-merchant payments will continue without MDR.

Small merchants to continue with zero MDR

Small merchants operating under the person-to-person merchant (P2PM) model will continue to benefit from zero MDR.

Individual users will also not face a monthly quota or transaction limit for accessing free UPI payments.

5% MDR collections to support small merchants

The revised framework will also establish a dedicated fund aimed at expanding UPI acceptance among small merchants.

Five per cent of the total MDR collected will be directed towards this fund, which is intended to encourage smaller businesses to adopt and accept UPI payments.