UPI Payment Charges Framework Announcement
The Ministry of Finance has introduced a new Merchant Discount Rate (MDR) framework for UPI transactions under the Payment and Settlement Systems Act, 2007, following detailed deliberations by the UPI Steering Committee. The framework ensures that UPI remains completely free for all person-to-person (P2P) transactions regardless of transaction value, accounting for 70% of total transaction value. Additionally, approximately 96% of all person-to-merchant (P2M) transactions will remain unaffected by charges.
Transaction Categories Exempt from Charges
All P2P UPI transactions remain completely free with no transaction fees, platform fees, or other charges imposed on individuals for sending or receiving money. For merchant transactions, all payments up to ₹2,000 will remain free of MDR. Small merchants including street vendors receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on all transactions, protecting street vendors, neighborhood shops, and other small businesses from additional payment costs.
MDR Application on Specific Transactions
A nominal MDR of 0.4% will apply only to P2M transactions above ₹2,000, with the MDR shared among payment ecosystem participants including banks, payment service providers, and UPI application providers. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction. Essential sector transactions above ₹2,000 in railways, telecommunications, insurance, fuel, and agricultural inputs will attract a flat MDR of ₹5 per transaction to provide cost certainty for critical public services and thin-margin businesses. Capital market transactions relating to mutual funds, securities, stockbrokers, and dealers will attract a reduced MDR of 0.02%, capped at ₹300 per transaction to support retail participation in formal financial markets.
Customer Protection Measures
The framework clarifies that MDR is neither a tax nor a charge collected by the Government or NPCI, but rather distributed among payment ecosystem participants to support operation and expansion of the UPI ecosystem. Banks have been advised to ensure merchants do not pass MDR charges to customers, and UPI application providers are expressly prohibited from imposing platform fees or hidden charges. Individuals will continue to have unlimited free usage with no monthly quotas, volume restrictions, or tiered caps on free UPI transactions. Existing daily transaction limits ranging from ₹1 lakh to ₹5 lakh are characterized as security and risk-management safeguards rather than charging thresholds.
Support Mechanisms and Implementation
A dedicated fund will be established to promote UPI adoption among small merchants, with an amount equivalent to 5% of total MDR collections contributed to this fund. The fund will support wider UPI acceptance, sustained usage, and the inclusion of small businesses in India's digital payments ecosystem. The framework aims to strengthen the long-term sustainability of UPI while keeping payments free for individuals and protecting small merchants, with revenue from larger merchant transactions supporting infrastructure expansion in rural and semi-urban areas. The framework aligns with the recommendation of the Standing Committee on Finance in its 32nd Report emphasizing the importance of viable revenue models.