UPI Transaction Charges Framework Notification
The Government of India has amended the Payment and Settlement Systems (PSS) Act, 2007, empowering the government to notify specific electronic payment modes where no charges shall apply, providing the legal foundation for affordability and transparency in digital transactions. On 14 September 2026, the Central Government issued a notification specifying that Unified Payments Interface (UPI) transactions up to ₹2,000 will attract zero Merchant Discount Rate (MDR). The National Payments Corporation of India (NPCI) issued a detailed circular on 15 September 2026 after deliberation by the UPI steering committee on operational parameters, fee distribution models, and category caps.
Transaction Category Specifications
Person-to-person (P2P) transactions will remain completely free regardless of transaction value, covering 37% of total UPI transaction volume and 70% in value terms. Charges will apply only to person-to-merchant (P2M) transactions exceeding ₹2,000. For P2M transactions above ₹2,000, a nominal MDR of 0.4% will be levied, shared among payment ecosystem partners including banks and app providers. For high-value transactions of ₹75,000 and above, MDR is capped at ₹300 per transaction.
Sector-Specific MDR Provisions
Essential sectors including railways, telecom, insurance, fuel, and agricultural inputs will pay a flat MDR of ₹5 per transaction above ₹2,000, ensuring cost stability in critical public services and thin-margin industries. These Industry Program categories account for approximately 17% of UPI P2M transaction volume and 46% of UPI merchant transaction value. Capital market transactions for mutual funds, securities, stock brokers, and dealers will attract a reduced MDR of 0.02%, capped at ₹300 per transaction to encourage retail participation in formal financial markets.
Small Merchant Protection
Small merchants receiving up to ₹1 lakh per month via UPI QR codes under the Person-to-Person-Merchant (P2PM) classification will continue with mandatory zero MDR for all transactions, bridging informal street vendor setups with formal merchant acquiring accounts and promoting digital adoption in the unorganized sector. Data analysis indicates that only 4% of merchant transactions will be impacted by MDR introduction, as the majority fall below the ₹2,000 threshold or qualify under the zero-MDR P2PM framework.
Consumer Safeguards and Infrastructure Development
UPI app providers are explicitly prohibited from levying platform fees or hidden charges, and banks have been advised to ensure merchants do not pass MDR charges to customers. There are no monthly quotas, volume limits, or tiered caps on free UPI transactions for individuals, with daily transaction limits (₹1-5 lakh depending on category) being purely risk-management measures. A dedicated fund for promoting UPI usage by small merchants will be established with 5% of total MDR collections to expand UPI acceptance and accelerate small business inclusion in India's digital payments ecosystem.
The framework aims to make UPI self-sustainable, provide incentives for expansion in rural and semi-urban areas, maintain competitiveness, and ensure the large majority of payments remain free of charge, aligning with recommendations from the Standing Committee on Finance's 32nd report which emphasized establishing a viable revenue mechanism for UPI ecosystem financial sustainability.