UPI to Remain Free for Person-to-Person Payments, 96% of Merchant Transactions.
New Delhi:
The Government has clarified that the new framework for the Unified Payments Interface (UPI) will not affect person-to-person (P2P) transactions. UPI will continue to remain completely free for individuals sending or receiving money, regardless of the amount transferred.
Under the new framework, merchant payments of up to Rs. 2,000 will also remain free of Merchant Discount Rate (MDR). Transactions covered under the zero-MDR framework for small merchants will continue to remain exempt as well. According to the government, these provisions mean that approximately 96 per cent of all person-to-merchant (P2M) transactions will remain unaffected.
MDR will apply only to specified merchant transactions above Rs. 2,000.
All Person-to-Person Transactions to Remain Free
All P2P UPI transactions will continue to be free, irrespective of the transaction amount. Individuals will not be charged a transaction fee, platform fee or any other charge for sending or receiving money through UPI.
The government said P2P transactions account for around 70 per cent of the total transaction value and will remain completely outside the MDR framework.
Merchant Payments Up to Rs. 2,000 Exempt from MDR
All P2M UPI transactions of up to Rs. 2,000 will remain free of MDR. Customers will not have to pay any additional charge while making such payments through UPI.
The provision is intended to ensure that routine, low-value digital payments continue to be accessible to consumers without additional costs.
Small Merchants to Continue Receiving Zero-MDR Benefit
Small merchants, including street vendors, neighbourhood shops and other micro-businesses, will continue to benefit from zero MDR under the P2PM category.
Small merchants receiving up to Rs.1 lakh per month through UPI QR codes will remain covered by the zero-MDR arrangement. The government said this provision is aimed at protecting small businesses from additional payment costs.
MDR on Specified Merchant Transactions Above Rs. 2,000
A nominal MDR of 0.4 per cent will apply to specified P2M transactions above Rs. 2,000.
The MDR will be distributed among participants in the digital payments ecosystem, including banks, payment service providers and UPI application providers. For transactions of Rs. 75,000 and above, the MDR will be capped at Rs. 300 per transaction.
The government clarified that MDR is neither a tax nor a charge collected by the Government or NPCI. Instead, it is a charge within the merchant-payment ecosystem intended to support the operation and expansion of UPI services.
Special Rates for Essential Sectors
Transactions above Rs.2,000 in certain essential and thin-margin sectors will attract a flat MDR of Rs. 5 per transaction.
The sectors covered include railways, telecommunications, insurance, fuel and agricultural inputs. The government said the flat rate is intended to provide greater cost certainty for critical public services and businesses operating on narrow margins.
Lower MDR for Capital Market Transactions
Payments related to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02 per cent, subject to a maximum of Rs. 300 per transaction.
The lower rate is intended to support continued retail participation in formal financial markets.
Customers Will Not Have to Pay MDR
The government has emphasised that MDR is a merchant-side charge and is 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 on individuals.
Individuals will continue to have unlimited free use of UPI, with no monthly quotas, volume restrictions or tiered caps on free transactions.
Daily transaction limits prescribed by banks and NPCI—generally ranging from Rs.1 lakh to Rs. 5 lakh depending on the transaction category—are security and risk-management measures and are not charging thresholds.
Around 96% of Merchant Transactions to Remain Unaffected
Government data analysis indicates that MDR will apply to only about 4 per cent of merchant transactions.
Consequently, approximately 96 per cent of merchant transactions will remain unaffected, either because they fall below the Rs. 2,000 threshold or because they are covered by the zero-MDR framework for small merchants.
The framework is therefore designed to keep P2P payments free and protect low-value transactions and small businesses while introducing MDR for specified higher-value 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 acceptance of UPI, sustained usage and greater participation of small businesses in India’s digital payments ecosystem.
Framework Aims to Support Long-Term UPI Growth
The new 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 seeks to support the long-term sustainability of UPI while keeping person-to-person payments free and protecting small merchants from additional payment costs.
Revenue generated from specified 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 a recommendation of the Standing Committee on Finance in its 32nd Report, which highlighted the importance of establishing a viable revenue model for sustaining the digital payments ecosystem.
