·
No
impact on P2P transactions: All person-to-person (P2P) UPI transactions
remain completely free, irrespective of the amount transferred.
·
Merchant
payments up to ₹2,000: P2M transactions up to
₹2,000
will continue to attract zero
MDR.
·
Small
merchants protected: Small merchants receiving up to ₹1 lakh per month
through UPI QR under the P2PM category will continue to enjoy zero MDR.
·
MDR
only on specified transactions: A 0.4% MDR will apply to
merchant transactions above ₹2,000, with a maximum of ₹300 per transaction
for transactions of ₹75,000 and above.
·
Essential
sectors: Transactions above ₹2,000 involving
railways,
telecommunications, insurance, fuel and agricultural inputs
will attract a flat ₹5
MDR.
·
Capital-market
payments: Transactions involving mutual funds, securities, stockbrokers
and dealers will attract 0.02%
MDR, capped at ₹300.
·
Customers
will not pay MDR: MDR is an ecosystem-level charge. Banks
have been advised to ensure merchants do
not pass the MDR on to customers, while UPI apps cannot impose
platform or hidden charges.
·
96% of
P2M transactions unaffected: The framework
estimates that MDR will apply to only about 4% of merchant transactions, leaving
approximately 96%
unaffected.
·
No
monthly limits on free UPI: Individuals will
continue to have unlimited free UPI usage. Existing daily transaction limits
are security/risk-management
limits, not charging thresholds.
·
Small-merchant
support fund: 5%
of total MDR collections will be contributed to a dedicated
fund to promote UPI adoption among small merchants.
·
Purpose:
Introduced under the Payment
and Settlement Systems Act, 2007, the framework aims to provide
a sustainable revenue mechanism for banks, payment service providers and UPI
application providers while keeping
P2P payments free and protecting small merchants.
Effect: The
framework introduces MDR only for specified higher-value merchant transactions
while maintaining zero-cost
UPI for individuals, small merchants and the overwhelming majority of merchant
transactions.
[ABS News Service/16.09.2026]
The new UPI
framework introduced has no impact on any person to person transactions. UPI
will continue to remain completely free for all person-to-person transactions,
irrespective of the amount transferred.
Payments to
merchants up to ₹2,000, along with transactions covered under the
zero-MDR framework for small merchants, will also remain free. Consequently,
approximately 96% of all P2M transactions will remain unaffected. MDR will
apply only to specified merchant transactions above ₹2,000.
It is
clarified that MDR is neither a tax nor a charge collected by the Government or
NPCI. It is distributed among payment ecosystem participants, including banks
and payment application providers, to support the operation and continued
expansion of the UPI ecosystem.
Introduced
under the Payment and Settlement Systems Act, 2007, following detailed
deliberations by the UPI Steering Committee, the framework seeks to ensure the
long-term sustainability of UPI while protecting individuals and small
merchants from additional charges.
I.
What Will Remain Free
All
Person-to-Person Transactions: All person-to-person (P2P) UPI transactions will
remain completely free, irrespective of the amount transferred. No transaction
fee, platform fee or other charge may be imposed on individuals for sending or
receiving money through UPI. Therefore, UPI transactions accounting for 70% of
the total transaction value will remain completely outside the MDR framework.
Merchant
Payments Up to ₹2,000: All person-to-merchant (P2M)
transactions up to ₹2,000 will remain free of MDR. Customers will not be
required to pay any charge when making such payments through UPI.
Payments
Received by Small Merchants: Small merchants including street vendors receiving
up to ₹1 lakh per month through UPI QR codes under the
Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on
all transactions. This provision will protect street vendors,
neighbourhood shops and other small businesses from additional payment costs.
II.
What Will Attract MDR
Merchant
Transactions Above ₹2,000: A nominal MDR of 0.4% will
apply only to P2M transactions above ₹2,000. The MDR will be
shared among payment ecosystem participants, including banks, payment service
providers and UPI application providers. For transactions of
₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Transactions
in Essential Sectors: Transactions above ₹2,000 in essential and
thin-margin sectors, including railways, telecommunications, insurance, fuel
and agricultural inputs, will attract a flat MDR of ₹5 per transaction.
The flat charge will provide cost certainty for critical public services
and businesses operating on narrow margins.
Capital Market
Transactions: Payments relating to mutual funds, securities,
stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300
per transaction. The lower rate is intended to support continued
retail participation in formal financial markets.
III.
Customers Will Not Pay MDR
MDR is a
charge within the merchant payment ecosystem. It is not a charge on customers
making UPI payments.
Banks have
been advised to ensure that merchants do not pass MDR charges on to customers.
UPI application providers are expressly prohibited from imposing platform fees
or hidden charges.
Individuals
will continue to have unlimited free usage, with no monthly quotas, volume
restrictions or tiered caps on free UPI transactions.
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. They are not charging thresholds.
IV.
Most Merchant Transactions Will Remain Unaffected
Data analysis
indicates that MDR will apply to only about 4% of merchant transactions.
This means
that approximately 96% of merchant transactions will remain unaffected,
as they are either below the ₹2,000 threshold or covered by the zero-MDR
framework for small merchants.
The framework
therefore protects individuals, micro-enterprises and small businesses while
introducing a limited charge on larger merchant transactions.
V.
Support for Small Merchants
A dedicated
fund will be established to promote UPI adoption among small merchants. An
amount equivalent to 5% of total MDR collections will be contributed to
this fund.
The fund will
support wider UPI acceptance, sustained usage and the inclusion of small
businesses in India’s digital payments ecosystem.
VI.
Ensuring the Continued Growth of UPI
The framework
has been introduced under the Payment and Settlement Systems Act, 2007,
following detailed deliberations by the UPI Steering Committee on the
applicable rates, operational arrangements and consumer safeguards.
The framework
seeks to strengthen the long-term sustainability of UPI while keeping payments
free for individuals and protecting small merchants.
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 consistent with the recommendation of the Standing Committee on Finance
in its 32nd Report, which emphasised the importance of a viable revenue.