The Finance Ministry has provided comprehensive clarification on the new UPI fee rules, confirming that UPI payments up to ₹2,000 will remain completely free of any bank charges. According to The Times of India, the new Merchant Discount Rate (MDR) of 0.4% will apply to UPI transactions above ₹2,000, subject to an overall cap of ₹300. Payments to merchants up to ₹2,000, along with transactions covered under the zero Merchant Discount Rate (MDR) framework for small merchants, will also remain free. Consequently, approximately 96 percent of all P2M transactions will remain unaffected by the new fee structure. The Ministry emphasized that MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem. MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments, as confirmed by Zee News. The framework has been introduced under the Payment and Settlement Systems Act, 2007, following detailed deliberations by the UPI Steering Committee. The new MDR will take effect from October 15, with banks advised to ensure merchants do not pass MDR charges on to customers. NPCI's September 15 FAQ confirms that transactions up to ₹2,000 account for more than 95% of UPI P2M transaction volume and will remain unaffected. The Department of Financial Services (DFS) under the Ministry of Finance confirmed that UPI services will continue without any cost to consumers, with individual account holders able to continue using UPI applications for all routine, daily expenses without worrying about any charges. For the average UPI user, the immediate change is limited, with P2P UPI transactions remaining free, merchant payments up to ₹2,000 staying MDR-free, and UPI AutoPay escaping the new rate structure. Government sources stated there is no plan to reconsider the 0.4% Merchant Discount Rate (MDR) on such transactions, with a top official confirming there was no question of reversing it. The finance ministry on Wednesday clarified that there was no foreign influence behind the decision to impose 0.4% MDR on UPI transactions above ₹2,000, following accusations by some Opposition parties, including the Congress, that the government succumbed to US pressure in taking the decision.
Under the new UPI framework effective from October 15, 2026, ordinary customers will continue using UPI without paying merchant processing fees, with 5 situations where MDR does not apply. Sending money to friends and family remains free, regardless of the amount sent, as these are classified as person-to-person transfers where money moves directly between individuals. Paying eligible small merchants will continue receiving payments without MDR, covering street vendors and neighbourhood shops that receive up to ₹1 lakh per month via UPI QR codes under the specified Person-to-Person-Merchant category. Merchant payments of ₹2,000 or less remain free of MDR, covering everyday purchases such as groceries, snacks or household items within that amount, with a payment of exactly ₹2,000 also qualifying for the exemption. Using UPI AutoPay for recurring payments remains free of MDR, including regular subscriptions or bill payments set up through automatic payment arrangements, though consumers must still pay the actual amount due for the service. Payments up to ₹2,000 in essential sectors also remain exempt from MDR, covering railways, telecom, insurance, fuel and agricultural inputs, with for covered transactions above ₹2,000, a flat ₹5 merchant charge applies rather than the standard 0.4% variable rate. Government sources told ANI that there is no separate GST on MDR, though GST would apply to applicable MDR charges with businesses eligible for credits. Officials will monitor implementation to prevent merchants from passing charges to customers, with the government also discussing enforcement with payment aggregators. Standard bank-to-bank UPI transfers do not attract any transaction fees for individual users, regardless of the transaction value, as the Ministry of Finance designates UPI as a digital public good, ensuring that the foundational payment infrastructure remains free for consumers.
NPCI has clarified that scanning QR codes at local markets, street vendors, or small retail shops will remain completely free for consumers, with the customer-facing side of a QR transaction involving zero fees, regardless of the purchase amount. As per Zee Business, the customer-facing side of a QR transaction involves zero fees, regardless of the purchase amount, with banks instructed that merchants cannot pass MDR costs to customers, while UPI apps cannot levy platform charges. Small merchants receiving up to ₹1 lakh per month through UPI QR payments directly into their bank accounts will continue to have mandatory zero MDR on all transactions under the Person-to-Person-Merchant (P2PM) classification. Small businesses, including street vendors and neighbourhood shops, receiving up to ₹1 lakh a month through UPI QR codes under the P2PM category will remain protected from MDR, promoting digital payment acceptance across the unorganised retail sector. The framework protects individuals, micro-enterprises and small businesses while introducing a limited charge on larger merchant transactions, as stated by the Ministry of Finance. NDTV Profit confirms that customers will not pay MDR; charges apply only to merchants for select transactions above ₹2,000, with existing QR infrastructure continuing to work and a merchant can be moved into the regular P2M category if its UPI collections exceed ₹1 lakh a month for three consecutive months. For most users, this change may not be noticeable in daily life, as everyday spending at local vendors, on transport, and on small retail purchases remains free, exactly as they were before this announcement. The rule is explicit that merchants cannot pass this fee to customers, and payment applications are barred from introducing platform charges of their own.
Payments made through the Unified Payments Interface (UPI) towards the mutual funds, securities, stockbrokers, dealers and investment platforms will attract a Merchant Discount Rate (MDR) of 0.02%, subject to a maximum charge of ₹300 per transaction. As per The Times of India, this special rate applies to payments made to mutual funds, SEBI-registered brokers and dealers such as Groww, Zerodha, Upstox and Angel One, as well as investment platforms covering transactions linked to equity, debt and mutual funds, along with broker wallet top-ups. For instance, a ₹50,000 payment towards an eligible capital-market transaction would attract an MDR of ₹10 at the 0.02% rate. The capital-market rate is significantly lower than the standard 0.4% MDR applicable to select person-to-merchant (P2M) UPI transactions above ₹2,000, with the charge capped at ₹300 to limit MDR on larger transactions. The government said the lower rate is aimed at encouraging retail participation in formal financial markets. Education-related fee collections will also have a separate structure, with flat-fee or capped processing arrangements for transactions above ₹2,000, according to NPCI. Mutual fund SIPs through UPI AutoPay will not attract the prescribed MDR, with NPCI's UPI AutoPay facility supporting recurring payments including mutual funds, insurance, utility bills and OTT subscriptions. UPI AutoPay escapes the new MDR framework, meaning consumers using UPI for recurring payments such as monthly utility bills, OTT subscriptions and recurring investments will not be affected by the prescribed MDR.
Essential and thin-margin sectors including railways, telecom, insurance, fuel and agricultural inputs will pay a flat MDR of ₹5 per transaction above ₹2,000, with these categories accounting for nearly 17% of P2M transaction volume but roughly 46% of P2M transaction value. As per The Times of India, transactions above ₹2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of ₹5 per transaction. Unlike the 0.4% variable rate, these sectors will pay a fixed ₹5 per transaction irrespective of the transaction value. For instance, a ₹50,000 insurance premium payment in an eligible category would attract a ₹5 MDR rather than the ₹200 that would result from applying 0.4%. For fuel purchases at petrol stations via UPI, the flat concessional rate of ₹5 applies for payments over ₹2,000, protecting petrol pump operators from high processing fees on tank refills while ensuring all fuel payments under ₹2,000 remain MDR-free at 0%. For utility bill payments exceeding ₹2,000, a flat concessional MDR of ₹5 applies, rather than a 0.4% variable rate, with utility transactions under ₹2,000 carrying zero MDR. Public utility payments such as electricity distribution, municipal water charges, and piped natural gas fall under designated Industry program category and qualify for flat concessional MDR of ₹5 for payments exceeding ₹2,000, rather than the standard 0.4% variable rate. For consumers, the key point is that this is an MDR payable within the merchant payment ecosystem, rather than a new UPI transaction fee imposed directly on the person making the payment. Someone paying an annual insurance premium through UPI therefore should not assume that a ₹50,000 payment will automatically mean a ₹200 charge to their bank account.
