The government has clarified that person-to-person (P2P) UPI transactions will continue to remain free, irrespective of the amount transferred, under the new merchant discount rate (MDR) framework. Payments to merchants of up to ₹2,000 will also remain free, leaving about 96% of merchant transactions outside the new MDR structure.

The framework applies only to specified person-to-merchant (P2M) transactions. A 0.4% MDR will be charged on merchant payments above ₹2,000, with transactions of ₹75,000 or more subject to a maximum MDR of ₹300 per transaction. The government said MDR is a payment ecosystem charge rather than a tax or a fee collected by the government or NPCI.

Transactions above ₹2,000 in essential and thin-margin sectors will instead attract a fixed MDR of ₹5 per transaction. These categories include railways, telecommunications, insurance, fuel and agricultural inputs.

A separate rate of 0.02% will apply to UPI payments involving mutual funds, securities, stockbrokers and dealers, with the charge capped at ₹300 per transaction.

The government has also stated that customers will not be required to bear MDR. Banks have been advised to prevent merchants from transferring the charge to consumers, while UPI application providers will not be permitted to impose platform fees or hidden charges. Individual users will continue to have unlimited free UPI usage without monthly quotas or volume-based restrictions.

Small merchants will receive additional protection under the framework. Merchants, including street vendors and neighbourhood businesses, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to receive zero-MDR treatment.

The government said MDR would apply to only about 4% of merchant transactions. A dedicated fund will also be created to support UPI adoption among small merchants, with an amount equivalent to 5% of total MDR collections allocated to it.

The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee.
Source:Press Release: Press Information Bureau