UPI imposes charges on merchant payments above ₹2,000, the maximum charge is ₹300 | Today’s news

Mumbai: The Finance Ministry on Tuesday announced that merchant discount rate (MDR) of 0.4% will be applicable on the above merchant-to-merchant (P2M) UPI transactions. ₹2,000, while peer-to-peer (P2P) transactions will remain free regardless of their value.

For transactions from ₹75,000 and above, MDR will be limited to ₹300 per transaction, the ministry said in a statement.

The announcement concludes months of debate over higher value UPI transaction charges. The new framework follows the government’s decision on Monday to keep UPI transactions up to the limit ₹2,000 without MDR, while banks and payment system providers are not allowed to levy direct or indirect charges on such transactions.

According to the statement, only 4% of merchant transactions will be affected by the introduction of MDR as most of the transactions either fall under ₹2,000 threshold or eligible for zero MDR under P2PM for small traders.

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“P2P transactions account for 37% of total UPI transactions in terms of volume and 70% in terms of value,” the finance ministry said in a report. She added that the decision followed discussions by the UPI NPCI management committee on operational parameters, fee distribution models and category ceilings.

The ministry also clarified that no transaction fee, platform fee or any other fee can be levied on individuals who send or receive money through UPI. Small traders, including street vendors and neighborhood shops, will receive up to ₹1,00,000 per month through UPI QR codes in the person-to-person-merchant (P2PM) category will continue to be covered under the zero MDR framework.

Further, automatic debit recurring payments such as utility bills or mutual fund subscriptions, known as UPI Mandates or AutoPay, will not attract the prescribed MDR transaction charges.

The new MDR framework and threshold structure will take effect from October 15, giving acquiring banks, payment aggregators, fintech applications and corporate accounting platforms time to update their software tools and invoicing systems, according to the statement.

Quick answers to key questions

•5 QUESTIONS

The new MDR for merchant-to-person (P2M) UPI transactions above ₹2,000 is set at 0.4%, while it is capped at ₹300 for transactions of ₹75,000 and above.

The introduction of MDR aims to create a sustainable funding mechanism for the UPI system as the operational costs were previously borne by banks and payment service providers.

The MDR will be distributed among various stakeholders, including banks and payment service providers, to support investments in infrastructure, cyber security and improve customer service.

Yes, UPI person-to-person (P2P) transactions will remain free of any charges, even after the introduction of MDR for higher value business transactions.

Small merchants who receive up to ₹100,000 per month through UPI QR codes will continue to benefit from the zero MDR framework, ensuring that their transactions remain free.

India’s UPI platform processed 241.6 billion worth of transactions ₹314.2 crore in FY26, up 30% year-on-year in volume and 21% in value. According to NPCI data, UPI had more than 55 million users as of August 2026.

The platform processed 24.5 billion worth of transactions ₹29.8 million crores in August 2026, which is an increase of 22% in volume and 20% in value compared to the previous year. P2M transactions accounted for 30% of the total UPI transaction value in August, with up to ₹500 which represents 16% and between them ₹501 a ₹2,000 at 17%.

In terms of volume, P2M transactions accounted for 63% of UPI transactions, of which 86% were lower than ₹500 and another 10% were in between ₹501 a ₹2,000, according to the latest NPCI data.

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Cost competitiveness

Transaction above ₹2,000 in core and low-margin sectors including railways, telecom, insurance, fuel, service payments, school fees and agricultural inputs will attract a flat MDR of ₹5 per transaction. Payments relating to mutual funds, securities, stockbrokers and traders will have an MDR of 0.02% with a maximum limit ₹300 per transaction.

The ministry clarified that MDR is neither a tax nor a levy levied by the government or NPCI. Instead, it will be distributed among ecosystem participants, including banks, payment service providers and UPI app providers.

According to the NPCI FAQ, the MDR will be used to invest in infrastructure resilience, innovation, cybersecurity and customer service. The intention is to keep UPI accessible and convenient for everyday transactions while supporting the long-term sustainability of the ecosystem.

Individuals will continue to have unlimited free UPI usage, with no monthly quotas, volume caps or tiered limits on free transactions.

The UPI MDR is structured to be much lower than traditional card-based transaction fees. Standard credit card MDRs typically range from 1.5% to 2.5% per transaction, while debit card MDRs are capped at up to 0.90%.

“UPI remains the most affordable digital payment acceptance tool for commercial enterprises. This pricing differential helps merchants reduce payment processing costs while accepting digital transactions,” NPCI said.

Dedicated fund for small traders

NPCI also announced that 5% of the total MDR collected will be earmarked for a dedicated fund for small traders. The fund will be used to subsidize and accelerate digital payments infrastructure in Tier 3-6 hubs, including North Eastern states, Jammu and Kashmir and Ladakh, as well as Tier 1 and 2 hubs.

The fund will also support some announced schemes of the central government.

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“This fund will also be used to extend financial assistance to players in the merchant enrollment ecosystem and spur the growth of UPI transactions among existing small merchants,” NPCI said.

The fund will provide incentives for UPI transactions originating from small merchants, especially in rural areas and Tier 3 centers and beyond, to encourage sustained usage, increase penetration of digital payments and accelerate the inclusion of small businesses in the digital payments ecosystem.

The detailed framework of the fund will be finalized in consultation with the Reserve Bank of India over the next three months.