| ➡️ Click here to Join Whatsapp News Group - Get instant updates of all Banking News |
The Pension Fund Regulatory and Development Authority (PFRDA) has formally requested the Ministry of Finance to exempt National Pension System (NPS) voluntary contributions from the upcoming Merchant Discount Rate (MDR) on UPI transactions.
The pension regulator’s core argument is that subscribers utilizing the NPS Direct Remittance (D-Remit) facility are not buying goods or services from a merchant; instead, they are merely transferring their own hard-earned money from a personal bank account into their own retirement account. PFRDA has argued that these transactions should be classified as person-to-person (P2P) transfers, which are completely free of cost. [1]
The Regulatory Conflict: Why This Request Matters
The tension stems from a new digital payment framework taking effect on October 15, 2026. The National Payments Corporation of India (NPCI) is introducing a 0.4% MDR on select Person-to-Merchant (P2M) UPI payments exceeding ₹2,000.
The Problem: Point of Presence (PoP) agencies and Central Recordkeeping Agencies (CRAs) process these incoming digital funds. If NPS deposits are treated under standard corporate/merchant parameters, the 0.4% fee could erode a subscriber’s investable principal on large, recurring retirement contributions.
The Solution Sought: PFRDA Chairperson S. Ramann confirmed that discussions are underway to resolve the issue. While the primary goal is total P2P exemption, the regulator is alternatively looking for the finance ministry to at least cap the merchant transaction fee at a flat ₹5 per transaction. This would align NPS deposits with other critical, concession-rate sectors like insurance, telecom, and utilities.
When you invest in the NPS, the entity collecting your money—whether it is a Central Recordkeeping Agency (CRA) or a Point of Presence (PoP) bank—technically uses a corporate or consumer-to-merchant payment channel. Under the new National Payments Corporation of India (NPCI) framework, any transaction classified as Person-to-Merchant (P2M) over ₹2,000 will attract a 0.4% Merchant Discount Rate (MDR).
If you make a voluntary contribution of ₹50,000 to your NPS account via UPI, a 0.4% MDR translates to a fee of ₹200.
While the Finance Ministry has explicitly stated that merchants are not allowed to pass this fee directly onto consumers, pension intermediaries (CRAs and PoPs) operate on razor-thin, regulated margins. They cannot absorb a 0.4% fee on large volumes of fund inflows without it disrupting the system. If they are forced to pay, it would ultimately reduce the efficiency of retirement fund collections.
If the Finance Ministry and NPCI decline to classify NPS transfers as P2P, PFRDA Chairperson S. Ramann confirmed that they are pushing for a fallback option: capping the fee at a flat ₹5 per transaction. The new UPI framework already grants a flat ₹5 concessional rate to “Special Sectors” like insurance premiums, utility bills, and telecom recharges when transactions cross ₹2,000.
