UPI payments above Rs 2000 to attract MDR after debit, credit cards? Here’s what users need to know about the proposal

Will making online UPI payments above Rs 2000 really cost you more? While debit and credit cards already attract MDR, a proposal to levy the same on UPI transactions has also been introduced now. Before you fret on this, understand what the change could mean for you.

Finance Minister Nirmala Sitharaman on Tuesday introduced the Taxation and Other Laws (Amendment) Bill in Parliament. Among the changes is an amendment in the Payment and Settlement Systems Act, 2007, which would give government flexibility to impose Merchant Discount Rate (MDR).

The proposal seeks to remove the zero-MDR provision under Section 10A of the Payment and Settlement Systems Act, 2007. According to this section, banks, other financial entities should not impose charge for using electronic modes of payment.


The latest proposal tabled by FM Sitharaman now seeks to remove that reference from the act.

After debit and credit cards, MDR fee coming to UPI payments?

While there has been no official word from the government on this yet, it is learnt that the Centre could allow a levy of 0.25% to 0.4% as merchant discount rate (MDR) charges on UPI payments above Rs 2000, according to a Times of India report.

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So, does this mean that the proposal will directly impact you? First understand what MDR is.

Short for Merchant Discount Rate, MDR is a charge or fee that banks or payment processing companies levy on merchant companies for every credit or debit card transaction done by their customers. It generally ranges between 1-3% of the transaction amount.

Will you need to pay more for UPI transactions above Rs 2000?

According to the TOI report, the MDR will apply to UPI payments over Rs 2000 made to businesses. However, any payments an individual makes to another person will not attract any MDR, meaning your personal money transfers will most likely remain MDR safe.

Currently, MDR is levied on debit and credit card transactions, but the companies can’t charge the user for it and recover it from the merchant. However, some merchants charge the customer extra to recover the cost.

MDR on debit card transactions

The Reserve Bank of India had specified the maximum MDR applicable to debit card transactions.

MERCHANT CATEGORY	PHYSICAL POS INFRASTRUCTURE INCLUDING ONLINE CARD TRANSACTIONS	QR CODE-BASED CARD ACCEPTANCE INFRASTRUCTURE
Small merchants (with turnover upto Rs 20 lakh during previous FY)	Not exceeding 0.40% (MDR cap of Rs 200 per transaction)	Not exceeding 0.30% (MDR cap of Rs 200 per transaction)
Other merchants (with turnover upto Rs 20 lakh during previous FY)	Not exceeding 0.90% (MDR cap of Rs 1000 per transaction)	Not exceeding 0.80% (MDR cap of Rs 1000 per transaction)

Further, the RBI vide circular dated December 6, 2017, advised banks to ensure that merchants on-boarded by them do not pass on Merchant Discount Rate (MDR) charges to customers while accepting payments through debit cards.

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MDR on credit card transactions

In the case of credit cards, the MDR is not regulated. So, the Merchant Discount Rate can be as high as 3% of the transaction value.

Meanwhile, in view of several digital payment providers charging service charges for transferring money from credit/debit cards, the government had in August 2020 directed banks to immediately refund charges collected, if any, on or after January 1, 2020 on transactions carried out using the electronic modes.

The central bank had also advised banks not to impose charges on any future transactions through the prescribed modes.