Business EconomyPosted at: Sep 15 2026 7:33PM


UPI users get relief: No charges on P2P payments, MDR only on large merchant deals

Parwinder Sandhu
New Delhi, Sep 15 (UNI) Unified Payments Interface (UPI) payments between individuals will continue to remain completely free irrespective of the transaction value, while a nominal Merchant Discount Rate (MDR) will be imposed only on person-to-merchant (P2M) transactions exceeding Rs 2,000, the Ministry of Finance said on Tuesday.
Transactions above Rs 2,000 involving railways, telecom, insurance, fuel and agriculture inputs, among other identified categories, will attract a flat MDR of Rs 5 per transaction.
Under the new framework, MDR on eligible P2M transactions will be fixed at 0.4 per cent, with the charge capped at Rs 300 per transaction for high-value payments of Rs 75,000 and above. The government said the framework was aimed at making the rapidly expanding UPI ecosystem financially sustainable without imposing a cost burden on ordinary users and small merchants.
The clarification assumes significance amid concerns over the introduction of MDR on UPI transactions and its possible impact on consumers and merchants. The Finance Ministry said the new structure specifically distinguishes between P2P and merchant transactions, with no charges applicable at all on P2P transactions, regardless of the amount transferred.
The government has amended the Payment and Settlement Systems (PSS) Act, 2007, empowering it to notify specific electronic payment modes where no charges shall apply. According to the Ministry, the amendment provides the legal foundation for ensuring affordability and transparency in digital payments.
On September 14, the Centre issued a notification under the amended framework specifying that UPI transactions up to Rs 2,000 would attract zero MDR. Subsequently, the National Payments Corporation of India (NPCI) issued a detailed circular on September 15 following deliberations by the UPI Steering Committee on operational parameters, fee-distribution mechanisms and category-wise caps.
P2P transactions account for around 37 per cent of UPI transactions by volume and 70 per cent by value, making the exemption significant for users transferring money directly to family members, friends or other individuals.
Charges will apply only when a transaction is classified as person-to-merchant (P2M) and exceeds Rs 2,000. Under the technical framework, the 0.4 per cent MDR on eligible P2M transactions will be shared among payment ecosystem participants, including banks and app providers.
For transactions of Rs 75,000 and above, the MDR will be capped at Rs 300, thereby placing an upper limit on the charge for large-value merchant payments.
A substantially lower MDR of 0.02 per cent will apply to payments relating to mutual funds, securities, stock brokers and dealers, with the charge capped at Rs 300.
The government said the reduced rate was intended to encourage greater retail participation in formal financial markets while keeping transaction costs low.
Small vendors and businesses will continue to enjoy zero MDR under the Person-to-Person-Merchant (P2PM) framework if they receive up to Rs 1 lakh per month through UPI QR codes. Such transactions will continue to attract mandatory zero MDR irrespective of the individual transaction value.
The government said the mechanism was designed to help small and informal vendors transition towards formal merchant acquiring accounts while encouraging wider digital-payment adoption in the unorganised sector.
Further, UPI application providers have been explicitly prohibited from imposing platform fees or hidden charges on users. Banks have also been advised to ensure that merchants do not pass on MDR costs to customers making payments through UPI.
The government clarified that there will be no monthly quotas, transaction-volume limits or tiered caps on free UPI usage for individuals. It also said the daily transaction limits prescribed by banks and NPCI, ranging from Rs 1 lakh to Rs 5 lakh depending on the category, are security and risk-management measures and should not be confused with commercial charge limits.
According to the government's analysis, the introduction of MDR will directly affect only about 4 per cent of merchant transactions. The Ministry said the overwhelming majority of transactions either fall below the Rs 2,000 threshold or qualify for zero MDR under the P2PM framework. "This ensures that micro and small businesses remain shielded from cost burdens," the government said.
As part of efforts to expand UPI acceptance, the government will establish a dedicated fund for promoting UPI usage among small merchants. Five per cent of total MDR collections will be contributed to the fund, which will be used to expand UPI acceptance, encourage sustained usage and accelerate the inclusion of small businesses in India's digital payments ecosystem.UNI PWS AAB
Tags: #UPI users get relief: No charges on P2P payments# MDR only on large merchant deals
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