PFRDA asks finance ministry to keep NPS contributions free of UPI charges

The pension regulator has written a letter to the finance ministry to exempt National Pension System (NPS) contributions made through UPI from merchant transaction charges, mentioning that subscribers are simply moving money from one of their accounts to another, according to three people familiar with the matter.

“So I am taking the argument that it is my (consumer) money going from one account to my own account. There is no merchant here. Why pay?” said one of the people aware of the development.

The Pension Fund Regulatory and Development Authority (PFRDA) has told the department of financial services (DFS) that contributions made through the NPS Direct Remittance (D-Remit) facility should be treated as person-to-person transfers rather than merchant payments.

In an official response to queries from Mint, PFRDA confirmed the development. “PFRDA has written to DFS in the month of October, 2026, with a request for treating UPI transactions undertaken through D-remit for NPS contributions as P2P transactions and keeping them outside the MDR framework,” the regulator said in its official response on Monday evening.

Queries sent by Mint on Sunday evening to the finance ministry, the DFS secretary, the Finance Minister's Office and the National Payments Corporation of India (NPCI) remained unanswered at the time of going to press.

The request comes ahead of the revised UPI merchant discount rate (MDR) regime kicking in on 15 October. Under the framework, eligible merchant payments above ₹2,000 will incur a charge, while person-to-person transfers will remain free.

The outcome could have implications for retirement savers, as NPS has 23.4 million subscribers and manages assets worth ₹17.36 trillion, making the classification of such contributions crucial to determining whether larger voluntary deposits via UPI incur additional costs.

The request seeks to distinguish NPS transactions from conventional commercial payments under the revised UPI charging framework.

Eligible P2M transactions exceeding ₹2,000 will incur an MDR of 0.4%, capped at ₹300 for transactions of ₹75,000 or more, under the revised framework.

Why the classification matters

Certain sectors, including railways, telecom, insurance, fuel, agricultural inputs and utilities, will attract a flat charge of ₹5. Capital-market-related payments, including mutual funds, securities and stockbrokers, will be subject to a lower MDR of 0.02%, capped at ₹300.

Small merchants covered under the P2PM framework and receiving up to ₹1 lakh a month through UPI QR codes will remain exempt.

“Where an individual transfers funds towards their own retirement savings, the justification for treating that transaction as a merchant payment cannot simply be assumed,” said Sonam Chandwani, managing partner at KS Legal & Associates. Any additional charge on NPS contributions requires a clear legal and economic justification, particularly if it raises costs for subscribers, Chandwani said.

The D-Remit facility allows NPS subscribers to make voluntary contributions to their Tier-I and Tier-II accounts using a unique 15-digit virtual account number, distinct from their Permanent Retirement Account Number (PRAN).

UPI-based contributions through D-Remit were introduced in 2022, and subscribers can also make contributions through personalised QR codes.

The revised MDR framework marks a change in the charging structure for eligible UPI merchant payments after nearly six years of a near-zero MDR regime. The charges are intended to support payment infrastructure, cybersecurity and wider merchant acceptance, while retaining zero MDR for smaller transactions. According to government estimates, around 96% of P2M transactions are expected to remain unaffected.

For NPS subscribers making voluntary contributions exceeding ₹2,000 through UPI, the classification of these transactions will determine whether the receiving side faces MDR charges under the revised framework.

• PFRDA wants NPS UPI contributions to be exempt from merchant transaction charges.
• The regulator argues that subscribers transfer money between their own accounts.
• New UPI MDR rules will soon apply to eligible payments.
• A classification decision could affect millions of pension savers nationwide.
• Authorities must clarify the rationale before imposing charges on retirement savings.