The Department of Financial Services (DFS) has categorically rejected claims that the revised UPI Merchant Discount Rate (MDR) is being passed on to customers, providing detailed evidence-based clarification. According to DFS's latest statement on X, the screenshot of settlement details circulated online appears to have been taken from the merchant side rather than showing customer payment details. The department emphasized that there is no argument of customer paying the MDR since the screenshot shows merchant-side information rather than customer transaction records. DFS clarified that UPI payments form bank accounts and UPI payments through credit cards are economically different products, with credit card transactions involving short-term loans funded by issuing banks.
Since its launch in 2016, UPI has grown into the world's largest real-time interoperable payment system — entirely on India's own terms, as reported by Zee News. The system processed 24.5 billion transactions in August 2026 alone, demonstrating its massive scale and importance to India's digital economy. The ministry highlighted that UPI continues to be free for customers, with sending money to friends, paying at shops, or scanning a QR code remaining without charges. UPI transactions accounting for 70% of total transaction value will remain completely outside the MDR framework, ensuring continued affordability for the majority of users.
The new framework introduces a nominal MDR of 0.4% for P2M transactions above ₹2,000, with the charge being shared among payment ecosystem participants including banks, payment service providers and UPI application providers. For transactions of ₹75,000 and above, the MDR is capped at ₹300 per transaction, as reported by Zee News. Additionally, transactions above ₹2,000 in essential sectors including railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction. Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at ₹300 per transaction to support continued retail participation in formal financial markets.
According to the ministry's clarification, all person-to-person (P2P) transactions will remain completely free, irrespective of the amount transferred, accounting for 70% of total transaction value that remains outside the MDR framework. As reported by Zee News, merchant payments up to ₹2,000 will remain free, and small merchants including street vendors receiving up to ₹1 lakh per month through UPI QR codes will continue to enjoy zero MDR. Customers will have unlimited free usage with no monthly quotas, volume restrictions or tiered caps on free UPI transactions. UPI application providers are expressly prohibited from imposing platform fees or hidden charges, ensuring no additional costs are passed to users.
The ministry explained that the new framework ensures resources from higher-value merchant transactions are reinvested to support small businesses and strengthen digital payments across the country. According to Zee News, the fees will fund better infrastructure and cybersecurity, support for small merchants in Tier III–VI towns and rural areas, and awareness and incentives to expand UPI adoption. The ministry emphasized that MDR is a charge within the merchant payment ecosystem and not a charge on customers making UPI payments, with banks advised to ensure merchants don't pass MDR charges to customers. 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 rather than charging thresholds.
