UPI Remains Free for Consumers

Finance Ministry Clarifies

Nominal MDR Only on Select High-Value Merchant Transactions from October 15

metro india news  I new delhi

The Finance Ministry on Tuesday issued a detailed clarification on Unified Payments Interface (UPI) transaction charges, reaffirming that ordinary users will continue to make payments without any fees while introducing a limited Merchant Discount Rate (MDR) framework solely for certain higher-value merchant transactions. The move follows a September 14 gazette notification and subsequent announcements by the National Payments Corporation of India (NPCI), aiming to ensure the long-term sustainability of India’s flagship digital payments system without burdening citizens or small businesses.

According to the Ministry, all person-to-person (P2P) UPI transactions will remain completely free of charge, regardless of the amount transferred. Consumers making payments will face no transaction fees, platform charges, or other costs imposed by banks or system providers. 

The September 14 notification, issued under Section 10A of the Payment and Settlement Systems Act, 2007, explicitly bars banks and payment system providers from levying any direct or indirect charges on UPI transactions up to Rs 2,000 and on payments made through RuPay-powered debit cards. This protection covers both the person making the payment and the recipient.

The Ministry emphasised that approximately 96 per cent of person-to-merchant (P2M) transactions by volume fall within the Rs 2,000 threshold and will continue to attract zero MDR. Small merchants operating under the Person-to-Person Merchant (P2PM) framework, including street vendors and neighbourhood shops receiving limited monthly volumes through UPI QR codes, are also fully protected from any charges. Officials noted that this preserves UPI’s role as an inclusive tool for everyday transactions such as grocery purchases, milk deliveries, and local services.For larger merchant transactions, a revised MDR framework will come into effect from October 15. 

Under the standard structure announced by NPCI, eligible P2M UPI payments above Rs 2,000 will attract a nominal MDR of 0.4 per cent. For high-value transactions of Rs 75,000 and above, the charge is capped at Rs 300 per transaction. For example, a Rs 3,000 payment would cost the merchant Rs 12 in MDR, while a Rs 50,000 transaction would attract Rs 200; a Rs 1 lakh payment would be limited to the Rs 300 cap rather than a full 0.4 per cent calculation.Certain essential and thin-margin sectors receive further relief. Transactions above Rs 2,000 involving railways, telecommunications, insurance, fuel, agricultural inputs, and select utilities will attract only a flat MDR of Rs 5 per transaction instead of the percentage-based rate. Capital market-related payments, such as those to mutual funds or stockbrokers, will face an even lower rate of 0.02 per cent, also subject to the Rs 300 cap.The Finance Ministry stressed that MDR is neither a tax nor a government levy.

It is a fee shared among ecosystem participants—including banks, payment service providers, and UPI app providers—to support infrastructure upgrades, cybersecurity, fraud prevention, and expansion of acceptance points, particularly in smaller towns and rural areas. Crucially, merchants cannot pass this cost on to customers. UPI app providers are also prohibited from imposing any platform fees on users.The clarification addresses earlier speculation that arose after Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, which amended Section 10A of the Payment and Settlement Systems Act.

Finance Minister Nirmala Sitharaman had earlier underlined in Parliament that UPI has remained free for consumers since its launch and that every Indian would continue to make instant digital payments without paying a transaction charge. Officials reiterated that claims of external pressure influencing the policy were “unfounded, completely false and misleading,” pointing to the government’s consistent support for zero charges.