New Delhi, Sep 15: The Centre on Tuesday announced a new framework for UPI payments, assuring that all person-to-person (P2P) transactions will continue to remain completely free, irrespective of the amount transferred.
Merchant payments (P2M) of up to ₹2,000 will also remain free of Merchant Discount Rate (MDR). Small merchants, including street vendors and neighbourhood businesses receiving up to ₹1 lakh per month through UPI QR codes, will continue to enjoy zero MDR. As a result, around 96% of all merchant transactions are expected to remain unaffected under the new framework.
However, a nominal 0.4% MDR will apply to specified merchant transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Transactions above ₹2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.
Payments related to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction.
The government clarified that MDR is neither a tax nor a charge collected by the government or NPCI. It is distributed among participants in the digital payments ecosystem, including banks, payment service providers and UPI application providers.
Customers will not be required to pay MDR. Banks have been advised to ensure that merchants do not pass the charge on to customers, while UPI application providers will not be allowed to impose platform fees or hidden charges.
Individuals will also continue to have unlimited free UPI usage, with no monthly quotas or tiered charges.
A dedicated fund will be created to promote UPI adoption among small merchants. An amount equivalent to 5% of total MDR collections will be allocated to the fund to support wider UPI acceptance and strengthen digital payments infrastructure, particularly in rural and semi-urban areas.
The new framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee.
The government said the framework aims to ensure the long-term sustainability of the UPI ecosystem while protecting individuals and small businesses from additional payment charges.
