Ministry of Finance Clarifies New Rules on UPI Payment Charges

The Ministry of Finance on 15th September 2026 clarified that the new UPI framework will not affect person-to-person (P2P) transactions, which will continue to be completely free, irrespective of the amount transferred. The Ministry stated that approximately 96% of person-to-merchant (P2M) transactions will also remain unaffected.

Background

According to the press release, the framework of new rules for UPI Payment Charges has been introduced under the Payment and Settlement Systems Act, 2007. The action follows deliberations by the UPI Steering Committee on applicable rates, operational arrangements, and consumer safeguards. The Finance Ministry stated that the framework is also consistent with the recommendation of the Standing Committee on Finance in its 32nd Report, which had emphasised the importance of a viable revenue model for the UPI ecosystem.

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

Free UPI Payments under New Rules

All Person-to-Person Transactions: All P2P UPI transactions will remain completely free, irrespective of the amount transferred. No transaction fee, platform fee, or other charge may be imposed on individuals for sending or receiving money through UPI. The release states that UPI transactions accounting for 70% of the total transaction value will remain completely outside the MDR framework.

Merchant Payments Up to ₹2,000: All P2M transactions up to ₹2,000 will remain free of MDR, with customers not required to pay any charge for such payments.

Payments Received by Small Merchants: Small merchants, including street vendors, receiving up to ₹1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on all transactions.

UPI Payment Charges Rules Regarding MDR

Merchant transactions above ₹2,000: A nominal MDR of 0.4% will apply only to P2M transactions above this threshold. This will be shared among payment ecosystem participants, including banks, payment service providers, and UPI application providers. For transactions of ₹75,000 and above, the MDR will be capped at ₹300 per transaction.
Transactions in essential sectors: Transactions above ₹2,000 in essential and thin-margin sectors, such as railways, telecommunications, insurance, fuel, and agricultural inputs, will attract a flat MDR of ₹5 per transaction.
Capital market transactions: Payments relating to mutual funds, securities, stockbrokers, and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction.

Customers Will Not Pay MDR

Clearing confusion on New Rules on UPI Payment Charges, the Ministry of Finance stated that MDR is a charge within the merchant payment ecosystem and not a charge on customers making UPI payments. Banks have been advised to ensure that merchants do not pass MDR charges on to customers, and UPI application providers are expressly prohibited from imposing platform fees or hidden charges.

Individuals will continue to have unlimited free usage, with no monthly quotas, volume restrictions, or tiered caps on free UPI transactions. The release notes that daily transaction limits prescribed by banks and NPCI, generally ranging from ₹1 lakh to ₹5 lakh depending on the transaction category, are security and risk-management safeguards, and not charging thresholds.

UPI Payment Charge New Rules: Impact on Merchant Transactions

Data analysis cited in the release indicates that MDR will apply to only about 4% of merchant transactions, with the remaining 96% unaffected either because they fall below the ₹2,000 threshold or are covered under the zero-MDR framework for small merchants.

Support for Small Merchants

The Ministry stated that a dedicated fund will be established to promote UPI adoption among small merchants. An amount equivalent to 5% of total MDR collections will be contributed to this fund, which will support wider UPI acceptance, sustained usage, and the inclusion of small businesses in India's digital payments ecosystem.