Ministry of Finance Clarification: UPI to Remain Free for All P2P and 96% of Merchant Transactions
The Ministry of Finance issued a press release on September 15, 2026, to clarify the new Unified Payments Interface (UPI) framework. The official release confirms that all person-to-person UPI transactions will continue to remain completely free of charge, irrespective of the amount transferred. The newly introduced Merchant Discount Rate (MDR) will only apply to specific merchant transactions above ₹2,000.
Key Highlights
- All person-to-person (P2P) UPI transactions will remain completely free.
- Payments to merchants up to ₹2,000 will also remain free from MDR charges.
- Customers will not pay any MDR or platform fees, as these are charges within the merchant ecosystem.
- Small merchants receiving up to ₹1 lakh per month through UPI QR codes will enjoy zero MDR on all transactions.
- Approximately 96% of merchant transactions will remain unaffected by the new MDR charges.
- MDR is distributed among payment ecosystem participants and is neither a tax nor a government charge.
Main Details and Guidelines
Zero Charges for Individuals
Under the new framework, individuals will continue to enjoy unlimited free usage for sending or receiving money. There are no transaction fees, platform fees, monthly quotas, or tiered caps imposed on individuals. The daily transaction limits set by banks and NPCI, which range from ₹1 lakh to ₹5 lakh, are solely security and risk-management safeguards and are not charging thresholds.
MDR on Larger Merchant Transactions
A nominal MDR of 0.4% will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000. For transactions of ₹75,000 and above, this MDR is capped at ₹300 per transaction. Banks have been explicitly advised to ensure that merchants do not pass these MDR charges on to customers.
Rates for Special Sectors
Transactions above ₹2,000 in essential sectors—such as railways, telecommunications, insurance, fuel, and agricultural inputs—will attract a flat MDR of ₹5 per transaction. Meanwhile, payments relating to capital markets (mutual funds, securities, stockbrokers) will attract a lower MDR of 0.02%, capped at ₹300 per transaction.
Support for Small Merchants
To support digital inclusion, 5% of total MDR collections will be contributed to a dedicated fund designed to promote UPI adoption among small businesses. The framework, introduced under the Payment and Settlement Systems Act, 2007, ensures the long-term sustainability of the UPI ecosystem.
UPI Transaction Charges Summary
| Transaction Category | Applicable Charges / MDR |
|---|---|
| Person-to-Person (P2P) | Completely Free |
| Merchant Payments up to ₹2,000 | Zero MDR (Free) |
| Small Merchants (up to ₹1 lakh/month via QR) | Zero MDR (Free) |
| Merchant Transactions Above ₹2,000 | 0.4% (Capped at ₹300 for ₹75,000+) |
| Essential Sectors (>₹2,000) | Flat ₹5 per transaction |
| Capital Market Transactions | 0.02% (Capped at ₹300) |
Conclusion
The updated framework ensures the viability and continued expansion of the digital payment infrastructure while keeping UPI entirely free for individual users. By applying MDR solely to large merchant transactions and establishing a dedicated fund, the government aims to protect small businesses and street vendors from additional payment costs.
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