Imagine buying a ₹5,000 appliance, scanning the shop’s QR code and completing the UPI payment. The shopkeeper then says, “UPI charges are applicable now, so you need to pay another ₹20.”
Can a merchant actually do that? No.
A new UPI Merchant Discount Rate (MDR) framework introduces a 0.4% charge on specified person-to-merchant (P2M) UPI transactions above ₹2,000 from October 15. However, the charge applies within the merchant-side payment ecosystem and cannot be passed on to customers as a separate UPI fee.
The government has also said around 96% of merchant UPI transactions will remain unaffected, either because they fall below the ₹2,000 threshold or qualify for the zero-MDR framework.
Here is what consumers need to know.
Can a Shopkeeper Charge You Extra for UPI?
No. Merchants cannot add MDR to a customer’s bill as a UPI surcharge.
The National Payments Corporation of India (NPCI) has clarified in its FAQs that merchants cannot pass the MDR charge on to customers. Banks have also been advised to ensure that merchants do not transfer the cost to consumers.
So, if your purchase costs ₹5,000, a merchant cannot simply turn it into ₹5,020 because you chose UPI as the payment method.
The price payable by the customer should remain the applicable price, without an additional UPI MDR charge.
What Exactly Is the 0.4% UPI Charge?
From October 15, a 0.4% MDR will apply to specified P2M UPI transactions above ₹2,000.
For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
For example, a ₹3,000 transaction would attract an MDR of ₹12, while a ₹5,000 payment would result in ₹20. A ₹50,000 payment would attract ₹200. At ₹1 lakh, the calculation would ordinarily produce ₹400, but the ₹300 cap would apply.
Importantly, these amounts are merchant-side charges and are not supposed to be added to the customer’s bill.
Does This Mean UPI Is No Longer Free?
For ordinary consumers, UPI payments remain free.
The Finance Ministry has clarified that consumers will not face transaction charges for making UPI payments. Person-to-person transfers, such as sending money to a friend or moving funds between your own bank accounts, also remain free.
There is no new monthly quota under which consumers start paying a fee after making a certain number of UPI payments.
What Happens to Payments of ₹2,000 or Less?
UPI merchant payments of up to ₹2,000 remain outside the new MDR charge under the framework.
That means a ₹500 grocery purchase, a ₹1,200 restaurant bill or a ₹2,000 purchase will not attract the new MDR for the merchant.
The customer also does not pay a separate UPI transaction fee.
What If Your Purchase Costs ₹2,500?
Even though ₹2,500 exceeds the ₹2,000 threshold, the customer still does not have to pay the MDR.
At 0.4%, the applicable MDR on ₹2,500 would be ₹10. But that ₹10 is a merchant-side charge within the payment ecosystem.
NPCI’s framework does not allow merchants to pass the MDR on to customers as an additional UPI payment fee.
What About Local Kirana Shops?
The framework also provides zero-MDR treatment for small merchants covered under the P2PM category, with monthly UPI QR receipts of up to ₹1 lakh.
Therefore, a neighbourhood shop or small vendor does not automatically become liable for MDR simply because one customer makes a payment above ₹2,000.
The merchant’s classification and applicable framework matter, rather than simply the value of one transaction.
What Should You Do If a Merchant Demands Extra?
If a shopkeeper asks for additional money specifically because you are paying through UPI, ask for clarification and request a bill.
If the additional amount is described as a UPI or MDR charge, it is inconsistent with the framework that prevents merchants from passing MDR on to customers.
Consumers should retain the bill, payment confirmation and other relevant transaction details if they need to raise a complaint.
Credits: News18
What Actually Changes From October 15?
The key change is on the merchant and payment-ecosystem side, not a new consumer fee for using UPI.
The government says approximately 96% of merchant UPI transactions will remain unaffected, either because they are below ₹2,000 or fall under the zero-MDR framework.
So, while some larger merchant transactions will now involve MDR, consumers do not need to add a percentage to their UPI payments simply because they scan a QR code. The amount displayed on the bill should remain the amount they pay.
