The government has clarified that the latest framework for charges on Unified Payments Interface (UPI) transactions will not put any additional fee burden on consumers. The clarification comes after concerns that the introduction of a Merchant Discount Rate (MDR) could eventually make digital payments more expensive for ordinary users.
Under the framework announced on September 15, 2026, person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred. Payments made by consumers to merchants up to ₹2,000 will also remain free of MDR. The government said these provisions mean that about 96% of merchant transactions will remain unaffected.
MDR will apply only to specified merchant transactions above ₹2,000. For such transactions, the nominal MDR has been set at 0.4%, with a cap of ₹300 for transactions of ₹75,000 and above. Certain essential sectors, including fuel, railways, telecommunications, insurance and agricultural inputs, will have a flat ₹5 MDR for eligible transactions.
Importantly, MDR is a charge within the payment ecosystem and is not a fee collected from consumers by the government or NPCI. Banks have been instructed to ensure that merchants do not pass the MDR on to customers. UPI application providers are also prohibited from imposing platform fees or hidden charges on users.
The government says the move is aimed at creating a sustainable financial model for the rapidly expanding UPI ecosystem, allowing banks, payment service providers and technology companies to invest in infrastructure, cybersecurity and fraud prevention.
For users, sending money to another person through UPI will continue to be free, while everyday merchant payments up to ₹2,000 will also carry no MDR. The new framework therefore seeks to introduce charges within parts of the merchant ecosystem without directly transferring that cost to consumers.
