NEW DELHI: The Government has clarified that person-to-person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred. The Finance Ministry said payments to merchants up to Rs 2,000, as well as transactions covered under the zero Merchant Discount Rate (MDR) framework for small merchants, will also continue to remain free. Consequently, around 96 per cent of all person-to-merchant (P2M) transactions are expected to remain unaffected. The revised framework will apply only to specified merchant transactions above Rs 2,000, while UPI app providers have been prohibited from imposing platform fees or hidden charges on users.
Under the revised framework, a nominal MDR of 0.4 per cent will apply to eligible P2M transactions above Rs 2,000, with MDR capped at Rs 300 for high-value transactions of Rs 75,000 and above. Small merchants receiving up to Rs 1 lakh per month through UPI QR codes under the P2PM classification will continue to enjoy mandatory zero MDR on all transactions. Railways, telecom, insurance, fuel and agriculture-input sectors will attract a flat MDR of Rs 5 per transaction above Rs 2,000. The Government has also advised banks to ensure that merchants do not pass MDR costs on to customers.
The Finance Ministry said MDR is neither a tax nor a government or NPCI charge, but is distributed among participants in the payments ecosystem, including banks and payment application providers, to support the operation and expansion of UPI. A dedicated fund to promote UPI adoption among small merchants will also be created, with 5 per cent of total MDR collections earmarked for the purpose. The Ministry said the new framework, introduced under the Payment and Settlement Systems Act, 2007, is aimed at strengthening the long-term sustainability of the UPI ecosystem while keeping person-to-person payments free and protecting small merchants.
