UPI Changes: P2P Payments Stay Free, Most Merchant Transactions Unaffected

New Delhi: Users will not have to pay more to send money through UPI under the new framework, with all person-to-person transactions remaining free regardless of the amount. The majority of payments made to merchants will also continue without MDR.

Around 96% of person-to-merchant (P2M) transactions are expected to remain unaffected, as MDR will apply only to specified merchant payments above ₹2,000, according to the framework.

For consumers, there is no change in the basic cost of using UPI. No transaction fee, platform fee or other charge can be imposed on individuals for sending or receiving money through UPI. P2P transactions account for around 70% of the total value of UPI transactions and remain outside the MDR framework.

Payments made to merchants up to ₹2,000 will also continue to be free of MDR. Small businesses are further protected under the zero-MDR provision for merchants receiving up to ₹1 lakh a month through UPI QR codes under the P2PM category. The provision covers businesses such as street vendors and neighbourhood shops.

The revised framework introduces MDR only for specified merchant transactions above ₹2,000. The rate will be 0.4%, with the proceeds distributed among participants in the digital payment ecosystem, including banks, payment service providers and UPI application providers. For transactions of ₹75,000 or more, the MDR will be capped at ₹300.

Certain sectors will have a separate fee structure. Merchant payments 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.

A lower MDR of 0.02%, capped at ₹300 per transaction, will apply to payments related to mutual funds, securities, stockbrokers and dealers.

The MDR is an ecosystem-level charge and not a fee on UPI users. Banks have been advised to ensure that merchants do not recover the MDR from customers, while UPI application providers will not be allowed to impose platform fees or hidden charges.

There will also be no monthly quota or tiered cap on free UPI usage. Daily transaction limits prescribed by banks and NPCI—generally between ₹1 lakh and ₹5 lakh depending on the category—will continue to serve as security and risk-management measures rather than charging thresholds.

The framework also seeks to support smaller businesses through a dedicated fund. An amount equivalent to 5% of MDR collections will be contributed to the fund to encourage wider UPI acceptance and sustained digital payment adoption among small merchants.

The new arrangement has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee on rates, operational mechanisms and safeguards.

The broader objective is to create a sustainable revenue model for the UPI ecosystem without shifting the cost to individual users or small merchants. Revenue from specified larger merchant transactions is expected to help banks, payment service providers and application providers maintain and expand payment infrastructure, including in rural and semi-urban areas.

The framework is also in line with the Standing Committee on Finance’s 32nd Report, which highlighted the need for a viable revenue model to sustain and expand India’s digital payments infrastructure.