Government clarifies credit card-linked UPI payments exempt from 0.4% fee

Credit card-linked UPI payments will not come under the new 0.4% Merchant Discount Rate (MDR) regime, the government has clarified, offering relief to consumers who use credit cards or linked credit facilities to make payments through UPI .

The clarification comes ahead of the revised UPI fee structure, which is scheduled to take effect from October 15. Under the new framework, a 0.4% MDR will be applicable to certain direct account-to-merchant-account UPI payments above ₹ 2,000, with the fee capped at ₹ 300 per transaction.

, as well as pre-sanctioned bank credit lines, involve credit extended by the issuing bank. Such transactions consequently continue to be governed by the applicable credit card and credit-product regulations.

The revised MDR regime is specifically aimed at direct user-bank-account-to-merchant-bank-account UPI transactions and does not extend to credit-linked payments.

The revised system changes the treatment of some high- value merchant UPI payments.

For certain transactions above ₹ 2,000, a flat MDR of ₹ 5 will apply. Other person-to-merchant (P2M) UPI transactions above the ₹ 2,000 threshold will attract an MDR of 0.4%.

The 0.4% charge will be subject to a maximum of ₹ 300 per transaction, thereby limiting the fee applicable to larger-value payments.

Certain categories have been placed under the flat ₹ 5 charge. These include payments involving railways, telecom services, insurance and fuel when the transaction value exceeds ₹ 2,000.

A separate, much lower MDR of 0.02% will apply to capital-market-related UPI payments.

This category includes transactions involving mutual funds, securities, stock brokers and dealers. The MDR will also be capped at ₹ 300 per transaction.

The differentiated rates are intended to account for the varying nature and economics of different merchant payment categories.

The new framework is expected to have a relatively limited impact on the overall UPI ecosystem because only a small proportion of merchant transactions exceed the relevant threshold.

Around 4% of merchant transactions are expected to come within the scope of the new MDR structure, while more than 95% of UPI person-to-merchant payments will continue without MDR.

Small merchants operating under the person-to-person merchant (P2PM) model will continue to benefit from zero MDR.