UPI remains free for P2P transactions, 96% of merchant payments under ₹2000: Govt
The new UPI framework will not impose charges on person-to-person payments, while about 96% of merchant transactions will remain outside the MDR framework, the government has clarified.
The government said all P2P UPI transactions will remain completely free, with no transaction fee, platform fee or other charge imposed on individuals for sending or receiving money through UPI.
NEW DELHI: The new framework for UPI transactions will not affect person-to-person payments, with all P2P transactions continuing to remain free irrespective of the amount transferred, the government said on Tuesday.
The clarification comes amid concerns over the introduction of a Merchant Discount Rate (MDR) on certain UPI merchant transactions. According to the government, MDR will apply only to specified person-to-merchant (P2M) transactions above ₹2,000, while approximately 96% of merchant transactions will remain unaffected.
The government said all P2P UPI transactions will remain completely free, with no transaction fee, platform fee or other charge imposed on individuals for sending or receiving money through UPI.
Merchant payments up to ₹2,000 will also continue to remain free of MDR. In addition, small merchants, including street vendors and neighbourhood shops, receiving up to ₹1 lakh a month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to be covered by zero MDR.
What changes for larger merchant payments
Under the new framework, a nominal MDR of 0.4% will apply to specified P2M transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
The government clarified that MDR is not a tax or a charge collected by either the government or NPCI. It is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers, to support the operation and expansion of the UPI ecosystem.
Certain essential and thin-margin sectors will have a separate treatment. Transactions above ₹2,000 involving sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.
For capital-market related payments involving mutual funds, securities, stockbrokers and dealers, the MDR will be 0.02%, subject to a cap of ₹300 per transaction.
Customers will not pay MDR
The government said MDR is a charge within the merchant-payment ecosystem and is not a fee payable by customers making UPI payments.
Banks have been advised to ensure that merchants do not pass MDR charges on to customers. UPI application providers have also been prohibited from imposing platform fees or hidden charges, according to the framework.
Individuals will continue to have unlimited free usage of UPI, with no monthly quotas, volume restrictions or tiered caps on free transactions.
The government also clarified that daily transaction limits prescribed by banks and NPCI, generally ranging from ₹1 lakh to ₹5 lakh depending on the transaction category, are security and risk-management safeguards and should not be treated as charging thresholds.
96% of merchant transactions unaffected
According to government data analysis, MDR will apply to only about 4% of merchant transactions.
The government said approximately 96% of merchant transactions will therefore remain unaffected, either because they fall below the ₹2,000 threshold or because they are covered by the zero-MDR framework applicable to small merchants.
The framework is intended to protect individuals, micro-enterprises and small businesses while introducing MDR for specified larger merchant transactions.
5% of MDR collections for small merchants
A dedicated fund will also be established to promote UPI adoption among small merchants. The government said an amount equivalent to 5% of total MDR collections will be contributed to the fund.
The fund will support wider UPI acceptance, sustained usage and the inclusion of small businesses in India’s digital payments ecosystem.
The framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee on applicable rates, operational arrangements and consumer safeguards.
The government said revenue generated from larger merchant transactions will support banks, payment service providers and UPI application providers in expanding and improving payment infrastructure, including in rural and semi-urban areas.
The framework is also described as being consistent with a recommendation of the Standing Committee on Finance in its 32nd Report, which emphasised the importance of ensuring a viable revenue model for the UPI ecosystem.
