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UPI MDR Charges Explained for Indian Merchants & Retailers

Unified Payments Interface (UPI) is the lifeblood of retail commerce in India, processing billions of merchant (P2M) payments every month. While peer-to-peer (P2P) transfers between individuals remain completely free, shopkeepers often ask whether accepting UPI payments via QR codes and Soundboxes incurs any transaction deductions.

What is the 0.40% UPI MDR Framework?

Under updated regulatory directives by the National Payments Corporation of India (NPCI) and the Reserve Bank of India (RBI), a standard 0.40% Merchant Discount Rate (MDR) applies to commercial Person-to-Merchant (P2M) transactions exceeding ₹2,000.

• ₹300 Cap on MDR: For high-value transactions of ₹75,000 and above, the MDR is capped at a maximum of ₹300 (0.40% of ₹75,000 = ₹300).
• 18% GST on Fee: The 18% Goods & Services Tax applies strictly to the MDR service charge, resulting in an effective rate of 0.472% (or a maximum total deduction of ₹354 on bills of ₹75,000+).

Small Merchant Exemption (P2PM Framework)

Crucially, small merchants and neighborhood vendors are protected under the Person-to-Person Merchant (P2PM) framework:

• Vendors who receive up to ₹1,00,000 (₹1 Lakh) per month through UPI QR codes directly into their bank accounts enjoy 100% Zero MDR (0% charge).
• Small merchants do not require GST registration to qualify for the zero MDR exemption under P2PM.

Is UPI Free for Merchants? (Bank-to-Bank P2M)

Yes. Standard bank-to-bank UPI payments—where a customer scans your QR code and pays directly from their savings or current account—carry a 0% Merchant Discount Rate (MDR). Under Ministry of Finance and National Payments Corporation of India (NPCI) directives, neither the merchant nor the customer is charged any fee for direct account transfers.

The ₹2,000 Threshold & Prepaid Wallet (PPI) Interchange

NPCI also maintains an interchange framework for Prepaid Payment Instruments (PPI), such as Paytm Wallet, PhonePe Wallet, Amazon Pay Wallet, or Sodexo PPI cards linked to UPI:

1. Transactions up to ₹2,000: Completely exempt (0% MDR).
2. Transactions strictly above ₹2,000: An interchange fee ranging from 0.40% to 1.10% (plus 18% GST) is charged to the merchant acquirer, usually capped at ₹300 per transaction.

NPCI Guidelines on Customer Surcharging

Under Reserve Bank of India (RBI) and NPCI circulars, merchants are strictly prohibited from adding an extra UPI fee or surcharge directly to customers at the checkout counter. If you want to protect your profit margins on high-ticket bills, factor overall payment processing overhead into your product catalogue or Maximum Retail Price (MRP) rather than asking for extra charges at payment time.