UPI Remains Free for P2P Payments, MDR Applies to Select Merchant Transactions Above ₹2,000

New Delhi, September 15, 2026: The Ministry of Finance has clarified that person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred.

Payments made to merchants up to ₹2,000 will also remain free of Merchant Discount Rate (MDR). The Finance Ministry said transactions covered under the zero-MDR framework for small merchants will continue to remain free as well.

According to the ministry, approximately 96 percent of all person-to-merchant (P2M) transactions will remain unaffected under the revised framework. MDR will apply only to specified merchant transactions above ₹2,000.

What Is MDR?

The Finance Ministry clarified that MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). It is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers, to support the operation and expansion of the UPI system.

Charges on Selected Merchant Transactions

A nominal MDR of 0.4 percent will apply to specified P2M transactions above ₹2,000. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.

Transactions above ₹2,000 in specified sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 per transaction. Capital-market transactions, including payments involving mutual funds, securities, stockbrokers and dealers, will have a separate MDR of 0.02 percent, capped at ₹300 per transaction.

Small Merchants to Continue with Zero MDR

Small merchants receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) classification will continue to receive the benefit of zero MDR on all transactions.

The ministry also said that banks have been advised to ensure that merchants do not pass MDR charges on to customers. UPI application providers have been prohibited from imposing platform fees or hidden charges on individuals for UPI transactions.

Individuals will continue to have unlimited free usage of UPI, with no monthly quotas, volume restrictions or tiered caps on free transactions. Daily transaction limits prescribed by banks and NPCI remain separate security and risk-management measures.

New Framework and Effective Date

The revised MDR framework has been introduced under the Payment and Settlement Systems Act, 2007, following deliberations by the UPI Steering Committee. The framework is intended to support the long-term sustainability of the UPI ecosystem while keeping P2P payments free and protecting small merchants from additional payment costs.