Unified Payments Interface (UPI) transactions between individuals will continue to remain completely free, irrespective of the amount transferred, according to a clarification issued by the Press Information Bureau (PIB) on September 15, 2026.
New UPI framework will also keep merchant payments of up to ₹2,000 free of Merchant Discount Rate (MDR). Payments received by eligible small merchants under the zero-MDR framework will also remain free. According to the government, around 96% of person-to-merchant (P2M) UPI transactions will remain unaffected by the new framework.
What remains free on UPI?
1. Person-to-person payments: People sending money to friends, family members or other individuals through UPI will continue to pay no transaction fee, regardless of the amount transferred. Government says P2P transactions account for around 70% of total UPI transaction value and will remain outside the MDR framework.
2. Merchant payments up to ₹2,000: When customers make UPI payments of up to ₹2,000 to merchants, no MDR will apply. For ordinary consumers, this means there will be no additional UPI payment charge on such transactions.
3. Small merchants: small merchants, including street vendors and neighborhood shops, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to receive payments under the zero-MDR framework. This is intended to protect small businesses from additional payment costs.
When will MDR apply?
New framework provides for MDR on specified merchant transactions above ₹2,000. For eligible merchant transactions above this threshold, the MDR is set at 0.4%, with a maximum of ₹300 per transaction for transactions of ₹75,000 and above.
Importantly, MDR is not a tax collected by the government or NPCI. It is a charge within the digital-payment ecosystem and is distributed among participating banks, payment service providers and UPI application providers.
Customers will not be charged MDR
According to the PIB clarification, MDR is a merchant-side payment ecosystem charge and not a charge that customers are required to pay. Banks have been advised to ensure that merchants do not pass the MDR on to customers. UPI application providers are also prohibited from imposing platform fees or hidden charges. There will also be no monthly quota or tiered limit on free UPI usage. Daily transaction limits set by banks and NPCI are intended as security and risk-management measures. They are not thresholds beyond which customers have to pay a fee.
What about essential services?
Certain essential and thin-margin sectors will have a different MDR structure. For merchant transactions above ₹2,000 involving sectors such as Railways, Telecommunications, Insurance, Fuel, Agricultural inputs - a flat MDR of ₹5 per transaction will apply, according to the framework.
What about mutual funds and stock-market payments?
Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction. Lower rate is intended to support retail participation in formal financial markets.
Why has the framework been introduced?
Government says the framework is aimed at ensuring the long-term sustainability of the UPI ecosystem while keeping person-to-person payments free and protecting small merchants. Revenue from specified larger merchant transactions will support participants in the payment ecosystem, including banks, payment service providers and UPI application providers.
Framework is being introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee. A dedicated fund will also be created to encourage UPI adoption among small merchants. According to the government, an amount equivalent to 5% of total MDR collections will be contributed to this fund.
What does this mean for an ordinary UPI user?
For most everyday users, the immediate message is straightforward - Sending money to another person through UPI remains free. Paying a merchant up to ₹2,000 through UPI remains free of MDR.
Government estimates that about 96% of merchant transactions will remain unaffected, while MDR will apply only to specified larger merchant transactions. Key distinction is between MDR and a customer transaction fee. MDR operates within the merchant-payment ecosystem; it is not intended to become an additional charge paid by the customer. For consumers and small businesses, therefore, the practical impact will depend largely on the type and value of UPI transactions they make.
Keywords: UPI charges 2026, UPI MDR explained, UPI new framework, UPI payment rules, merchant UPI charges, digital payments India, Citizen News Puttur