As per the announcement, UPI payments above Rs 2,000 carry an MDR of 0.4%.
The Merchant Discount Rate (MDR) framework for Unified Payments Interface (UPI) transactions, which will be implemented after Diwali, with the exact date yet to be notified, has raised questions among users and merchants about whether MDR charges will apply if someone splits a large payment into multiple smaller transactions.
Person-to-merchant (P2M) UPI transactions above Rs 2,000 will be subject to a Merchant Discount Rate (MDR) of 0.4%, according to the National Payments Corporation of India (NPCI).
There is a cap on UPI MDR charges of Rs 300 per transaction for transactions totaling Rs 75,000 or more. This implies that MDR fees would not apply to person-to-person (P2P) transactions or P2M payments up to Rs 2,000.
However, if you have a Rs 1 lakh merchant bill to pay, is it possible to avoid the MDR by simply splitting the amount into multiple UPI transactions?
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How to avoid the MDR charges?
As a regular UPI user, you first need to understand that you don’t have to pay the MDR charges when making UPI payments.
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Individual financial institutions have a daily standard UPI transaction limit of Rs 1 lakh per day for regular person-to-person (P2P) and person-to-merchant (P2M) payments from a single bank account, set by the National Payments Corporation of India (NPCI).
For P2P transactions, you can complete up to 20 transactions per account in a day under the Rs 1 lakh threshold; for P2M transactions, there is no cap on the number of transactions in 24 hours per account, subject to the Rs 1,00,000 cap, as per NPCI.
You can only send up to Rs 5,000 within the first 24 hours if you are a new UPI user.
Therefore, a UPI user could transfer Rs 1 lakh at a time in a day, either as 10 transactions of Rs 10,000 each or 20 transactions of Rs 5,000 each in order to stay within the limit. For the user, these transactions are therefore totally free from MDR.
In the same vein, you don’t need to worry about transferring money with your loved ones. According to NPCI, person-to-person transactions would remain free for both the payer and the beneficiary. This implies that there won’t be charges for anyone using UPI to send or receive money to or from another person, including self-transfers or splitting a bill with friends.
“UPI services will continue without any cost to consumers. Consumers can continue to transact free-of-cost using UPI as they have been doing till now. Consumers making payments through UPI will not face any charges. Individual account holders can continue using UPI applications for all routine, daily expenses without worrying about any charges. The MDR policy ensures that UPI remain free and accessible for all citizens across India,” according to NPCI.
Because when a customer pays more than Rs 2,000, it is the businesses and merchants who are required to pay a mandatory 0.4% MDR to their respective bank on the transaction amount, not the customer.
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UPI MDR vs debit and credit cards: How much do merchants pay on Rs.1 lakh?
MDR is the fee a merchant pays its bank on each digital payment.
A Rs 1 lakh purchase from a large merchant shows how it varies by payment mode.
“As per the announcement, UPI payments above Rs 2,000 carry an MDR of 0.4%, which works out to Rs 400, but is superseded by the fixed maximum cap of Rs 300 for transactions of Rs 75,000 and above. Credit card MDR typically ranges from 1.5% to 2.5%, or roughly Rs 1,500 to Rs 2,500. Debit card MDR is capped at 0.90%, or Rs 900 at most. These are indicative, and each mode offers customers different features,” said Adhil Shetty, CEO, BankBazaar.
What should a customer do if a merchant tries to pass it on?
MDR is paid by the merchant to its bank and forms part of the cost of accepting digital payments.
For UPI, the rules say merchants cannot pass it on to customers, who pay no charge to use UPI.
A customer who is asked for an additional charge to pay by UPI may raise it with their bank or UPI app. Banks have been advised to ensure that this charge is not passed on.
Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions.
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This article was first uploaded on October twenty, twenty twenty-six, at fifteen minutes past six in the evening.
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