Government Confirms Zero Fees on UPI P2P and Most Merchant Payments

The Unified Payments Interface (UPI) will stay completely free for all person-to-person transactions, no matter how much money is sent, according to the government.This applies under the new UPI framework announced on Tuesday.

The new framework also keeps merchant payments up to ₹2,000 free of the Merchant Discount Rate (MDR). Small merchants who receive payments through UPI QR codes and fall under the zero-MDR category will also have their transactions free.

Because of this, about 96% of all person-to-merchant (P2M) UPI transactions will not be affected by MDR. MDR will only apply to certain merchant transactions that are more than ₹2,000.

The government explained that MDR is not a tax or a charge collected by the government or the National Payments Corporation of India (NPCI). Instead, it is shared among different players in the digital payments system, like banks and payment app providers.This helps in running and expanding the UPI system.

What remains free under UPI All person-to-person (P2P) transactions will stay free. No fees or charges, like transaction or platform fees, will be added for sending or receiving money through UPI.

P2P transactions make up about 70% of all transactions and will not be part of the MDR framework. Merchant payments up to ₹2,000 will also stay free of MDR, so users don’t have to pay extra for such transactions through UPI.

Small merchants, including street vendors and local shops, who receive up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to enjoy zero MDR on all their transactions. MDR on certain merchant transactions

A small MDR of 0.4% will apply to certain P2M transactions that are more than ₹2,000. For transactions of ₹75,000 and above, the MDR is limited to ₹300 per transaction. Transactions over ₹2,000 in industries like railways, telecom, insurance, fuel, and agricultural products will have a fixed MDR of ₹5 per transaction. Transactions related to mutual funds, securities, stockbrokers, and dealers will have an MDR of 0.02%, capped at ₹300 per transaction. Customers won’t pay MDR

The government said MDR is part of the merchant payment system and not a charge that customers have to pay when using UPI. Banks have been told to make sure that merchants do not charge customers for MDR. UPI app providers are also not allowed to add any platform fees or hidden charges.

Users will continue to use UPI freely, with no limits on the number of transactions, no monthly caps, and no tiered restrictions on free transactions. Daily transaction limits set by banks and NPCI, usually between ₹1 lakh and ₹5 lakh, are for security and risk management and do not mean that charges are being applied. 96% of merchant transactions will remain unaffected

According to the government, MDR will only apply to about 4% of all merchant transactions. Around 96% of merchant transactions will be free, either because they are below the ₹2,000 limit or because they are covered by the zero-MDR framework for small merchants. The framework aims to protect individuals, small businesses, and micro-enterprises while adding a small charge on larger merchant transactions.

A special fund has also been set up to support small merchants in using UPI. 5% of all MDR collected will go into this fund. This fund will help in increasing UPI usage, keeping small businesses active, and including them in India’s digital payments system.

The framework was introduced under the Payment and Settlement Systems Act, 2007, after discussions by the UPI Steering Committee on rates, operations, and user protections. The government aims to ensure long-term support for UPI by keeping payments free for users and protecting small merchants. Money collected from larger merchant transactions will help banks, payment providers, and UPI app companies in building better payment systems, especially in rural and semi-urban areas. This framework also follows the recommendations of the Standing Committee on Finance in its 32nd Report, which called for a solid revenue model for the digital payments system.