UPI stays free for person-to-person transfers and merchant payments up to ₹2,000; 0.4% MDR on specified merchant payments above ₹2,000, says Finance Ministry
The Ministry of Finance says the new UPI framework under the Payment and Settlement Systems Act, 2007 does not touch person-to-person transfers. Merchant payments up to ₹2,000 and small merchants receiving up to ₹1 lakh a month stay at zero MDR. A 0.4% MDR applies to merchant payments above ₹2,000, capped at ₹300 for ₹75,000 and above; customers are not to be charged.
Key facts
- In force
- Date of application not stated in the release; release dated 15 September 2026
- Who it affects
- Merchants accepting UPI payments above ₹2,000, small merchants and street vendors using UPI QR codes, banks, payment service providers, UPI apps, UPI users
- What it is
- Clarified
- Section
- FEMA & RBI
- Published
- 15 September 2026
In 30 seconds
- All person-to-person (P2P) UPI transactions remain free, irrespective of amount, according to the release of 15 September 2026.
- Person-to-merchant (P2M) payments up to ₹2,000 remain free of MDR.
- Small merchants, including street vendors, receiving up to ₹1 lakh a month through UPI QR codes in the P2PM category keep zero MDR on all transactions.
- MDR of 0.4% applies to P2M transactions above ₹2,000; for ₹75,000 and above it is capped at ₹300 per transaction.
- Essential and thin-margin sectors: flat ₹5 per transaction above ₹2,000. Capital-market payments: 0.02%, capped at ₹300.
- Banks have been advised to ensure merchants do not pass MDR on to customers; UPI apps may not levy platform fees or hidden charges.
हिंदी में सार
वित्त मंत्रालय ने 15 सितंबर 2026 की विज्ञप्ति में कहा है कि व्यक्ति-से-व्यक्ति (P2P) UPI लेन-देन पर कोई शुल्क नहीं लगेगा, चाहे रकम कितनी भी हो। ₹2,000 तक के मर्चेंट भुगतान और महीने में ₹1 लाख तक पाने वाले छोटे दुकानदारों पर MDR शून्य रहेगा; ₹2,000 से ऊपर के मर्चेंट भुगतान पर 0.4% MDR (₹75,000 और उससे ऊपर पर अधिकतम ₹300) लगेगा। मंत्रालय के अनुसार यह शुल्क ग्राहक से नहीं लिया जाएगा।
Before and now
UPI was free of charge for both merchants and citizens since January 2020, as the Ministry’s release of 8 August 2026 puts it.
Zero MDR up to ₹2,000 and for small merchants; 0.4% on specified merchant payments above ₹2,000 (cap ₹300 at ₹75,000 and above), ₹5 flat for essential sectors, 0.02% for capital-market payments.
What the Ministry has said
In a release dated 15 September 2026, the Ministry of Finance says the new UPI framework “has no impact on any person to person transactions”. According to the release, the framework has been introduced under the Payment and Settlement Systems Act, 2007, after deliberations by the UPI Steering Committee on rates, operational arrangements and consumer safeguards.
The Ministry also clarifies that the Merchant Discount Rate (MDR) is neither a tax nor a charge collected by the Government or NPCI. It is shared among payment ecosystem participants — banks, payment service providers and UPI application providers.
What stays free and what attracts MDR
| Transaction | MDR as stated in the release |
|---|---|
| Person-to-person (P2P) transfers, any amount | Nil. No transaction fee, platform fee or other charge on individuals for sending or receiving money |
| Person-to-merchant (P2M) payments up to ₹2,000 | Nil |
| Small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes (P2PM category) | Zero MDR on all transactions |
| P2M transactions above ₹2,000 | 0.4%; capped at ₹300 per transaction for ₹75,000 and above |
| Transactions above ₹2,000 in essential and thin-margin sectors — railways, telecommunications, insurance, fuel, agricultural inputs | Flat ₹5 per transaction |
| Payments relating to mutual funds, securities, stockbrokers and dealers | 0.02%, capped at ₹300 per transaction |
The Ministry says MDR will apply to only about 4% of merchant transactions; approximately 96% remain unaffected. P2P transactions, which it puts at 70% of total transaction value, are wholly outside the MDR framework.
Customers are not to pay
- MDR is described as a charge within the merchant payment ecosystem, 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 have no monthly quotas, volume restrictions or tiered caps on free UPI transactions.
- Daily transaction limits set by banks and NPCI — generally ₹1 lakh to ₹5 lakh depending on the category — are security safeguards, not charging thresholds.
The earlier clarification
On 8 August 2026 the Ministry had issued a release titled “No Charges for UPI Users”. It described the amendment of section 10A of the Payment and Settlement Systems Act, 2007, proposed through the Taxation and Other Laws (Amendment) Bill, 2026, as an enabling provision, and said the “UPI and Services Steering Committee” headed by NPCI would decide on MDR, if any. That release said any MDR would be threshold-based, nominal and far lower than debit or credit card MDRs.
Fund for small merchants
An amount equal to 5% of total MDR collections is to go to a dedicated fund to promote UPI adoption among small merchants.
What readers should do
Merchants who accept UPI payments above ₹2,000 should note which of the three rates applies to their sector, and that the release says MDR is not to be passed on to customers. The release does not state the date from which the MDR applies. The Ministry asks citizens to rely only on official information from the Ministry of Finance, the Reserve Bank of India and NPCI.
Questions and answers
Will I be charged for sending money to another person on UPI?
No. The Ministry of Finance says all person-to-person UPI transactions remain completely free, irrespective of the amount, and no transaction fee, platform fee or other charge may be imposed on individuals for sending or receiving money.
When does MDR apply on a UPI payment to a merchant?
According to the release, an MDR of 0.4% applies only to person-to-merchant transactions above ₹2,000. For transactions of ₹75,000 and above it is capped at ₹300 per transaction.
Do small shops and street vendors have to pay MDR?
The release says small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category continue to have zero MDR on all transactions.
Can a merchant recover the MDR from the customer?
The release says MDR is not a charge on customers, that banks have been advised to ensure merchants do not pass MDR charges on to customers, and that UPI application providers are prohibited from imposing platform fees or hidden charges.
What is the rate for railways, fuel, insurance and mutual fund payments?
Transactions above ₹2,000 in essential and thin-margin sectors — railways, telecommunications, insurance, fuel and agricultural inputs — attract a flat ₹5 per transaction. Payments relating to mutual funds, securities, stockbrokers and dealers attract 0.02%, capped at ₹300.
Published 15 September 2026. Updated 9 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.