The Ministry of Finance has announced a revised charging structure for Unified Payments Interface (UPI) transactions that will protect most everyday payments while introducing modest charges on large merchant transactions. The new framework, introduced under the Payment and Settlement Systems Act, 2007, keeps person-to-person transfers completely free and shields small businesses from additional costs.
What changes and what stays free
All person-to-person UPI transactions will remain free, regardless of amount. This covers about 70% of total UPI transaction value. Merchant payments up to ₹2,000 will also have no charges, and small merchants receiving up to ₹1 lakh monthly through UPI will pay zero Merchant Discount Rate (MDR). Together, these protections mean approximately 96% of all merchant transactions remain unaffected.
Charges apply only to specific merchant payments above ₹2,000. These transactions will face a nominal MDR of 0.4%, capped at ₹300 for high-value transactions of ₹75,000 and above. Essential sectors including railways, telecommunications, insurance, fuel and agricultural inputs will pay a flat ₹5 per transaction instead. Capital market transactions—mutual funds, securities and stockbroker payments—attract a lower 0.02% MDR, capped at ₹300.
The Ministry clarified that MDR is not a government tax but a charge distributed among banks, payment providers and UPI application providers to support ecosystem operations. Customers making UPI payments will not directly bear MDR costs; banks have been instructed to prevent merchants from passing these charges to buyers.
A dedicated support fund will receive 5% of MDR collections to promote UPI adoption among small merchants and expand digital payment infrastructure in rural and semi-urban areas.
What this means for you
If you send money to family, friends or pay small bills through UPI, nothing changes—these transactions remain completely free with no limits or quotas. Shopkeepers and street vendors using UPI QR codes also face no new costs. Only large retailers and merchants processing transactions above ₹2,000 will experience a modest charge, which they absorb within their payment ecosystem rather than passing to customers.