New Delhi, September 15: The government has clarified that all Person-to-Person (P2P) transactions on the Unified Payments Interface (UPI) will remain completely free, irrespective of the amount transferred.
According to a press release issued by the Ministry of Finance, the new framework introduced under the Payment and Settlement Systems Act, 2007, ensures that users will not have to pay transaction, platform or other charges for transferring money to friends, family or other individuals through UPI.
The revised framework also keeps the majority of Person-to-Merchant (P2M) transactions outside the ambit of charges. Nearly 96 per cent of P2M transactions will continue to remain free, benefiting consumers, small traders and micro-enterprises.
For routine merchant payments, UPI transactions of up to ₹2,000 will continue to attract zero Merchant Discount Rate (MDR). This means neither customers nor merchants will have to bear MDR on such payments.
Small vendors, including street vendors and neighbourhood kirana stores, will also continue to enjoy zero MDR under the Person-to-Person-Merchant (P2PM) framework. Merchants receiving up to ₹1 lakh per month through UPI QR codes under this category will remain exempt from MDR on all transactions.
The framework, notified by the Central Government on September 14 and followed by an NPCI circular on September 15, stipulates that P2P transactions will not attract any charges. Such transactions account for around 37 per cent of UPI transactions by volume and 70 per cent by value.
For P2M transactions above ₹2,000, an MDR of 0.4 per cent will apply and will be shared among participants in the digital payments ecosystem, including banks and app providers. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
However, certain essential sectors will be subject to a separate flat MDR structure. Payments above ₹2,000 in sectors such as railways, telecom, insurance, fuel and agriculture inputswill attract an MDR of ₹5 per transaction.
These sectors account for nearly 17 per cent of UPI P2M transactions by volume and around 46 per cent by value, the government said.
Payments related to mutual funds, securities, stock brokers and dealers will attract a lower MDR of 0.02 per cent, subject to a maximum of ₹300 per transaction.
The government has also directed that UPI app providers will not be allowed to impose platform fees or hidden charges on users. Banks have been advised to ensure that merchants do not pass MDR costs on to customers.
The government estimates that only around 4 per cent of merchant transactions will be affected by the revised MDR framework, with the vast majority either falling below the ₹2,000 threshold or being covered under the zero-MDR P2PM framework.
To further promote digital payments among small businesses, a dedicated fund will also be established, with 5 per cent of total MDR collections allocated towards encouraging UPI adoption among small merchants and expanding digital payment infrastructure in rural and semi-urban areas.
The revised framework is aimed at maintaining UPI as a low-cost digital payment option while ensuring continued support for consumers, small merchants and businesses across the country.
