India to Allow Merchant Fees on UPI Transactions Above Rs 2,000

India's government has cleared the way for the reintroduction of Merchant Discount Rate (MDR) on high-value UPI transactions by specifying a Rs 2,000 threshold for fee-free payments. A Finance Ministry notification on September 14 designated transactions up to Rs 2,000 on UPI and RuPay debit cards as protected payment modes, meaning banks and system providers cannot impose direct or indirect charges on them.

The notification follows a legal amendment that replaced blanket protection from MDR with the government's power to specify protected payment modes. Previously, since January 2020, UPI and RuPay debit card payments were exempt from MDR, with the government providing incentives to support the digital payments ecosystem. These incentives, however, covered only a portion of the industry's costs.

This move creates a potential new funding mechanism for India's digital payment infrastructure, particularly for larger transactions. According to government data, transactions exceeding Rs 2,000 constitute 67% of the total value of UPI transactions. Protecting smaller payments below the threshold aims to preserve UPI's low-cost proposition for small merchants.

The actual MDR rate, if implemented, has not yet been determined. The NPCI-led UPI and Services Steering Committee will decide on the applicability of MDR and finalize its framework and rates for transactions above the Rs 2,000 threshold.