Fee levy on high-value UPI payments deferred until after Diwali

The levying of a 0.4 per cent fee on every UPI transaction above Rs 2,000, payable by the merchant, will begin only after Diwali, instead of October 15, the previously announced date, the National Payments Corporation of India (NPCI) said on Tuesday, citing the festive season

The NPCI said its UPI and Services Steering Committee had decided that the Merchant Discount Rate (MDR) on select person-to-merchant (P2M) transactions would be implemented immediately after Diwali, which falls on November 8, with the exact date to be notified separately.

The postponement follows the NPCI’s announcement last month that UPI payments exceeding Rs 2,000 would attract a 0.4 per cent merchant fee, capped at Rs 300 per transaction, while person-to-person transfers and merchant payments below Rs 2,000 would remain exempt, and the exemption would extend to merchants receiving less than Rs 1 lakh a month through UPI.

Although transactions exceeding Rs 2,000 account for only 4 per cent of P2M payments by volume but around two-thirds of their total value, capital market transactions will attract a lower rate of 0.02 per cent, while certain public services, including railway tickets, fuel, utility bills, insurance premiums and tax payments, will carry a flat Rs 5 fee on transactions above Rs 2,000.

The proposed charges have drawn concerns from retailers, who warn that the additional cost could erode their margins and discourage UPI usage. Some retailer associations have also cautioned that merchants might pass the charges on to consumers or encourage a shift towards cash payments, despite the government’s assurance that customers will not bear the burden.

The MDR proposal follows years of demands from the payments industry, which estimates its annual operating costs at around Rs 20,000 crore. The proposed fee structure could generate approximately Rs 15,000 crore, although industry sources say it would not cover the entire cost.

The NPCI has argued that the charges would support technological innovation and encourage fintech start-ups to compete with well-capitalised technology conglomerates. The government abolished MDR on UPI transactions in 2020 to promote digital payments, replacing the earlier 0.3 per cent fee with a subsidy for eligible transactions.

The Reserve Bank of India has also backed MDR on high-value UPI payments, maintaining that it would strengthen the long-term sustainability of the country’s digital payments ecosystem.