UPI Credit Card Payments and Other Exemptions

The proposed MDR framework for UPI payments via credit cards distinguishes between categories. The Ministry of Finance's announcement confirms that P2P transactions and merchant payments up to Rs 2,000 will remain free, while eligible small merchants will continue to receive zero-MDR treatment.

For payments involving RuPay credit cards on UPI, debit cards or credit lines, merchants should verify the applicable treatment under the relevant payment-network and acquiring arrangements. The available government summary does not establish every card-linked exemption in sufficient detail to treat all such transactions as categorically exempt from every existing fee.

Can Merchants Pass MDR Charges to Customers?

No. Under the government's announced framework, MDR is intended to be borne within the merchant-payment ecosystem, not charged directly to customers. Banks have been advised to ensure that merchants do not pass the MDR on to customers, and UPI application providers are prohibited from imposing platform fees or hidden charges. 

For example, a merchant should not add a separate UPI surcharge at checkout simply to recover the proposed MDR. Customers are expected to continue using UPI without a new payment-method surcharge under the announced framework.

Industry-Specific MDR Rates for Essential Services

The proposed structure provides different rates for selected sectors to limit the impact on essential services and businesses with thin margins.

Flat Rs 5 MDR for Selected Sectors

Eligible transactions above Rs 2,000 in railways, telecommunications, insurance, fuel and agricultural inputs are set to attract a flat MDR of Rs 5 per transaction.

For example, a qualifying Rs 10,000 payment in one of these categories would attract a proposed Rs 5 MDR instead of the standard 0.4% fee of Rs 40. The applicable treatment will depend on the transaction category and the final operational rules.

0.02% MDR for Capital-Market Transactions

The announced framework specifies an MDR of 0.02%, capped at Rs 300 per transaction, for eligible payments relating to mutual funds, securities, stockbrokers and dealers. The lower rate is intended to support participation in financial markets while contributing to the payment ecosystem's operating costs. 

Nithin Kamath, Co-founder and CEO of Zerodha, indicated that introducing MDR on general merchant transactions could be necessary to support payment operators. However, he questioned the economic rationale for applying similar charges to capital-market and investment payments, noting that such costs could place additional pressure on financial intermediaries. The concerns raised by the broking industry were followed by a separate, lower proposed MDR rate of 0.02%, capped at Rs 300, for eligible capital-market transactions.