The new Unified Payments Interface framework will not mean a charge on people for using UPI, the government has clarified. UPI payments between two individuals will remain completely free, no matter how much money is transferred. Payments made to merchants up to ₹2,000 will also remain free.
From October 15, merchants accepting UPI payments above ₹2,000 will pay a fee under the new framework, but customers will not have to pay this charge. The clarification from the government came on Tuesday after confusion over the new framework and whether people would have to pay for making UPI payments.
5 things that remain free under new UPI rules
- Person-to-person payments: Any amount - free.
- Receiving money: Any amount - free.
- Merchant payments up to ₹2,000: Free.
- Small merchants receiving up to ₹1 lakh/month: Zero MDR.
- Monthly UPI usage: No charge or quota for individuals.
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Deep Dive
What types of UPI transactions are subject to the Merchant Discount Rate (MDR)?
Will consumers have to pay any fees for person-to-person (P2P) UPI transactions?
How is the Merchant Discount Rate (MDR) calculated for UPI payments?
Will you be charged for sending money to another person?
No. If you send money to a friend, family member or another individual through UPI, you will not have to pay a transaction fee, platform fee or any other charge.
{{/usCountry}}No. If you send money to a friend, family member or another individual through UPI, you will not have to pay a transaction fee, platform fee or any other charge.
{{/usCountry}}This will remain the case irrespective of the amount transferred. So, whether you send ₹500 or ₹50,000 to another person, the UPI transaction will remain free.
The government said person-to-person (P2P) transactions account for about 70% of the total value of UPI transactions and will remain outside the MDR framework.
What if you use UPI to pay a shop?
The new framework comes into the picture here. If you make a UPI payment to a merchant of up to ₹2,000, there will be no MDR.
If you scan a shop's QR code and pay ₹500, ₹1,000 or ₹2,000, the payment remains free.
The government said customers will not have to pay a charge for these transactions.
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What happens if the payment is above ₹2,000?
For specified merchant transactions above ₹2,000, MDR will apply. MDR, or Merchant Discount Rate, is a charge within the payment ecosystem. It is not a tax and is not money collected by the government or NPCI, the government said.
Under the new framework, a 0.4% MDR will apply to specified merchant transactions above ₹2,000. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction.
The government has specified that customers will not pay MDR. Banks have also been advised to ensure that merchants do not pass the MDR cost on to customers.
If I pay ₹10,000 to a shop, will I be charged ₹40?
According to the government's clarification, no. A ₹10,000 merchant transaction may attract MDR within the payment ecosystem, but the customer is not supposed to be charged the MDR.
At 0.4%, the MDR on ₹10,000 would work out to ₹40. But that ₹40 is not supposed to be added to the customer's UPI payment.
The MDR is shared among participants in the payment ecosystem, including banks, payment service providers and UPI application providers.
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What about small shops and street vendors?
Small merchants will continue to have zero MDR under the framework.
The government said small merchants, including street vendors and neighbourhood shops, receiving up to ₹1 lakh per month through UPI QR codes under the P2PM category will continue to enjoy zero MDR on all transactions.
This means the framework is designed to protect small businesses from additional payment costs.
What about railway tickets, fuel and other essential payments?
Some essential and thin-margin sectors have a separate rule.
For transactions above ₹2,000 in sectors such as railways, telecommunications, insurance, fuel and agricultural inputs, a flat MDR of ₹5 per transaction will apply.
Will I be charged for mutual funds and stock-market payments?
Payments related to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction.
The government said the lower rate is intended to support continued retail participation in financial markets.
No monthly limit on free UPI payments
The government said individuals will continue to have unlimited free UPI usage. There will be no monthly quota, volume restriction or tiered cap on free UPI transactions.
Banks and NPCI have daily transaction limits for security and risk-management purposes. These limits can generally range from ₹1 lakh to ₹5 lakh, depending on the type of transaction.
Basically, reaching your daily UPI limit does not mean you have to pay a fee. It means you cannot make further transactions until the applicable limit resets.
Does MDR mean UPI is no longer free?
For individuals, UPI remains free. The new framework introduces MDR for certain merchant transactions, but the government has clarified that customers will not pay this MDR.
The government said around 96% of merchant transactions will remain unaffected because they are either below ₹2,000 or covered by the zero-MDR framework for small merchants.
MDR is expected to apply to about 4% of merchant transactions.