The government has moved to clear the air around UPI charges, confirming that person-to-person (P2P) payments will remain completely free, regardless of transaction amount. The clarification comes alongside a new merchant discount rate (MDR) framework that will apply only to a small slice of person-to-merchant (P2M) transactions.
Under the new rules, a 0.4% MDR kicks in solely on specified merchant transactions above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 and above. Crucially, the government says this affects just 4% of all P2M transactions – the remaining 96% stay untouched. And customers won’t foot the bill: MDR is positioned as an ecosystem charge, split among banks, payment service providers and UPI app providers, with banks explicitly told to prevent merchants from passing it on.
Small merchants get further protection – those receiving up to ₹1 lakh a month via UPI QR codes continue to enjoy zero-MDR treatment, and 5% of total MDR collections will feed a dedicated fund to boost UPI adoption among small businesses. Essential sectors like railways, telecom, insurance, fuel and agri-inputs get a flat ₹5 MDR on transactions above ₹2,000, while mutual funds and securities transactions attract a minimal 0.02% MDR.
Framed under the Payment and Settlement Systems Act, 2007, the move follows recommendations from the UPI Steering Committee and aims to build a sustainable revenue model for the UPI ecosystem – funding infrastructure expansion, especially in rural and semi-urban India – without disturbing the free, ubiquitous UPI experience most users know.
