The government has clarified that person-to-person (P2P) UPI transactions will remain completely free, regardless of the amount transferred. Payments made to merchants up to ₹2,000 will also continue without charges under the existing zero Merchant Discount Rate (MDR) framework.
The Finance Ministry said the revised UPI Merchant Discount Rate framework will affect only specified person-to-merchant (P2M) transactions above ₹2,000, while keeping digital payments free for individuals.
Around 96% of P2M Transactions Unaffected
According to the Ministry, approximately 96 percent of all person-to-merchant UPI transactions will remain unaffected by the revised framework. MDR will apply only to specified merchant payments exceeding ₹2,000.
A nominal MDR of 0.4 percent will be levied on eligible P2M transactions above the threshold. For high-value transactions of ₹75,000 and above, the charge will be capped at ₹300 per transaction.
The Ministry clarified that MDR is not a tax or a charge collected by the government or the National Payments Corporation of India (NPCI). Instead, the amount is distributed among participants in the digital payments ecosystem, including banks and payment application providers, to support the operation and expansion of UPI.
Small Merchants to Continue Receiving Zero MDR Benefits
Small merchants classified under the Person to Person Merchant (P2PM) category will continue to enjoy mandatory zero MDR on all transactions. The benefit applies to merchants receiving up to ₹1 lakh per month through UPI QR codes.
The government has also proposed a dedicated fund to promote UPI adoption among small merchants. According to an Akashvani correspondent report, the fund will receive a contribution equivalent to 5 percent of total MDR collections.
The Finance Ministry said banks have been advised to ensure that merchants do not pass MDR charges on to customers making UPI payments.
No Platform Fees or Hidden Charges for UPI Users
The Ministry said UPI application providers are explicitly prohibited from imposing platform fees or hidden charges on users.
It also clarified that individuals will continue to enjoy free UPI transactions without monthly quotas, volume limits or tiered caps.
Special MDR Rates for Selected Sectors
Under the revised framework, certain sectors will be subject to a flat MDR of ₹5 per transaction above ₹2,000. These include:
- Railways
- Telecom
- Insurance
- Fuel
- Agriculture inputs
The government said the framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee on applicable rates, operational arrangements and consumer safeguards.
Revised Framework to Support UPI Sustainability
NPCI has announced that the revised UPI Merchant Discount Rate framework will apply to select merchant transactions from October 15, while keeping UPI free for consumers.
The Finance Ministry said the changes are aimed at strengthening the long-term sustainability of the UPI ecosystem while protecting small merchants and ensuring that individuals can continue using UPI without transaction charges.
The revised framework seeks to balance the financial sustainability of digital payments with continued access to free UPI transactions for individuals and eligible small merchants.
