The Unified Payments Interface (UPI) will continue to remain completely free for all person-to-person transactions, irrespective of the amount transferred, under the new UPI framework, the government said on Tuesday.
The framework will also keep merchant payments up to ₹2,000 free of Merchant Discount Rate (MDR). Payments received by eligible small merchants under the zero-MDR framework will also remain free.
As a result, approximately 96 per cent of all person-to-merchant (P2M) UPI transactions will remain unaffected, while MDR will apply only to specified merchant transactions above ₹2,000.
The government clarified that MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). It is distributed among participants in the digital payments ecosystem, including banks and payment application providers, to support the operation and expansion of UPI.
What remains free under UPI
All person-to-person (P2P) transactions will continue to be free, with no transaction fee, platform fee or other charge imposed on individuals for sending or receiving money through UPI.
P2P transactions account for around 70 per cent of the total transaction value and will remain outside the MDR framework.
Merchant payments of up to ₹2,000 will also remain free of MDR, ensuring that customers do not have to pay additional charges while making such payments through UPI.
Small merchants, including street vendors and neighbourhood shops, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to benefit from zero MDR on all transactions.
MDR on specified merchant transactions
A nominal MDR of 0.4 per cent will apply to specified P2M transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Transactions above ₹2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.
Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02 per cent, capped at ₹300 per transaction.
Customers will not pay MDR
The government said MDR is a charge within the merchant payment ecosystem and not a charge imposed on customers making UPI payments.
Banks have been advised to ensure that merchants do not pass MDR costs on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges.
Individuals will continue to have unlimited free usage of UPI, with no monthly quotas, volume restrictions or tiered caps on free transactions.
The daily transaction limits prescribed by banks and NPCI, generally ranging between ₹1 lakh and ₹5 lakh depending on the transaction category, are security and risk-management measures and do not represent charging thresholds.
96% of merchant transactions unaffected
According to the government’s analysis, MDR will apply to only around 4 per cent of merchant transactions.
Approximately 96 per cent of merchant transactions will remain unaffected, either because they are below the ₹2,000 threshold or are covered by the zero-MDR framework for small merchants.
The framework is aimed at protecting individuals, micro-enterprises and small businesses while introducing a limited charge on larger merchant transactions.
Dedicated fund for small merchants
A dedicated fund will also be established to promote UPI adoption among small merchants. An amount equivalent to 5 per cent of total MDR collections will be contributed to the fund.
The fund will support wider UPI acceptance, sustained usage and greater inclusion of small businesses in India’s digital payments ecosystem.
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.
The government said the framework is intended to ensure the long-term sustainability of UPI while keeping payments free for individuals and protecting small merchants.
Revenue generated from larger merchant transactions will support banks, payment service providers and UPI application providers in expanding and improving payment infrastructure, including in rural and semi-urban areas.
The framework is also in line with the recommendation of the Standing Committee on Finance in its 32nd Report, which emphasised the need for a viable revenue model for the digital payments ecosystem.
